Today we have seen a diverging set of calls in the utility sector.  Bank of America Merrill Lynch has issued a somewhat cautious outlook, while Credit Suisse has talked up the risk-adjusted returns.  This is on the heels of a deep value and growth screen we ran on Exelon Corporation (NYSE: EXC); Entergy Corporation (NYSE: ETR); American Electric Power Co., Inc. (NYSE: AEP); and Public Service Enterprise Group Inc. (NYSE: PEG) as those utilities averaged dividend yields of close to 5%, were all large-cap, were down for the year so far, had operating margins of 15% or more, and a return on equity of at least 10%.

Credit Suisse’s outlook noted that there are still plenty of risk adjusted returns with the regulated utility group offering annual rates of return of 7% to 11%.  The breakdown is roughly 3% to 7% in earnings per share plus the $% to 5% in the dividend yields.  And on the risk side of the equation, CRedit Suisse sees a beta range of only 0.6 to 0.7 for the group.  The firm noted that this is a very compelling return in a low interest rate environment and fundamentally against the S&P 500 Index that would “require a minimum growth rate of 7% plus the 2.1% dividend yield to match the Utility stocks.”

Bank of America gave an earnings preview for the first quarter for utilities and brought up no winter, low earnings, and updating gas curves.  The mild weather is expected to drag down first quarter utility earnings by 6%.  The low natural gas price adjustments have been ratcheted down significantly from 2012 to 2014.   NV Energy, Inc. (NYSE: NVE) is noted as being expected to have a large dividend hike.

BofA also noted that Calpine Corporation (NYSE: CPN) has risen sharply and NRG Energy, Inc. (NYSE: NRG) and GenOn Energy, Inc. (NYSE: GEN) have both dropped sharply on the coal/gas switching theme, but the firm’s take is that the stocks may be extended too far on both sides as it does not see much change in guidance from any of the three companies.

It is always interesting when you see different calls when the same data is available.  It is a part of what makes a horserace.

JON C. OGG

BrightSource filed its first registration statement almost exactly one year ago and had recently filed an amended version setting a price range of $21-$23/share on an IPO of 6.9 million shares. MarketWatch cites an industry analyst who claims that orders for the stock came in below the company’s range. Google Inc. (NASDAQ: GOOG) and NRG Energy Inc. (NYSE: NRG) are investors in the firm, and the federal government has provided the company with loan guarantees of $1.6 billion.

The company’s claim that current market conditions don’t support an IPO may be true for solar thermal power firms, but other recent IPOs have been well-received. BrightSource, which is building the 377-megawatt Ivanhoe Solar Thermal Project in southern California, is running afoul of the extremely low prices for solar PV panels. Before solar panel prices fell by around 50%, solar thermal claimed a price/megawatt advantage that has since evaporated. Large solar PV installations, like the Antelope Valley Solar Ranch One project from First Solar Inc. (NASDAQ: FSLR), are now more competitive and may, in fact, even be cheaper to build at utility scale.

While BrightSource’s withdrawn IPO may not signal the end for solar thermal generation, it’s certainly a warning shot.

Paul Ausick

Brightpoint Inc. (NASDAQ: CELL) Reiterate as Buy with a $14 price target objective at Canaccord Genuity.
Cisco Systems Inc. (NASDAQ: CSCO) Reiterated as Buy with $24 price target objective at Argus.
Deckers Outdoor Corporation (NASDAQ: DECK) Reiterated as Buy with a $122 price target objective at Canaccord Genuity.
Diamond Offshore Drilling Inc. (NYSE: DO) Started as Sell with a $70 target price objective at Goldman Sachs.
France Telecom (NYSE: FTE) Cut to Underperform and named as Bear of the Day by Zacks Investment Research.
Hatteras Financial Corporation (NYSE: HTS) Cut to Neutral at Stern Agee.
Healthways Inc. (NASDAQ: HWAY) Raised to Buy at Stifel Nicolaus.
Hercules Offshore, Inc. (NASDAQ: HERO) Started as Neutral at Goldman Sachs.
Las Vegas Sands Corp. (NYSE: LVS) Cut to Neutral at Janney Capital Markets.
Lululemon Athletica Inc. (NASDAQ: LULU) Reinitiated as Buy at Stern Agee.
Melco Crown Entertainment Ltd. (NASDAQ: MPEL) Raised to Outperform from Neutral at Credit Suisse.
NRG Energy, Inc. (NYSE: NRG) Cut to Neutral from Buy at UBS.
Philip Morris International, Inc. (NYSE: PM) Cut to Neutral from Buy at Nomura.
Schlumberger Limited (NYSE: SLB) Started as Neutral at Goldman Sachs.
Sonic Automotive, Inc. (NYSE: SAH) named as value stock of the day by Zacks Investment Research.
State Auto Financial (NASDAQ: STFC) Raised to Buy from Neutral at Janney Capital Markets.
Veolia Environnement S.A. (NYSE: VE) Cut to Hold from Buy at Deutsche Bank.
VeriSign, Inc. (NASDAQ: VRSN) Raised to Outperform and featured as the Bull of the Day by Zacks Investment Research.
Weatherford International Ltd. (NYSE: WFT) Started as Buy with a $22 price target objective at Goldman Sachs.
Yum! Brands, Inc. (NYSE: YUM) Reiterated Buy with $65 fair value target at Janney Capital Markets.

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JON C. OGG

Most major league sports stadiums get substantial public exposure. Fans see the name while attending the games. In many cities, the arenas are a major landmark. They can be spotted, along with their emblazoned names, for miles around from the ground or the air. Then there are the nationally and internationally televised games when millions of people around the country — and sometimes the world — see and hear the sponsor company’s name as announcers refer to the venue. Over the 20-year lifespan of a naming rights deal, tens of millions of people see and hear the sponsor’s name over and over.

Read: The Most Valuable Stadiums in America

Some of the stadium sponsors on the 24/7 Wall St. list are headquartered in the same city as the sports venue. This is the case with American Airlines in Dallas. The airline gets local exposure in its home city. And because the airline is international, the fact that the stadium’s name appears on television and in sports promotions further extends awareness of the airline’s brand. American has spent $195 million on a 30-year naming rights deal to the basketball and hockey arena in Dallas. It is impossible to say whether that amount is too high or too low. But that is also true of most advertising and branding the carrier does.

Some of the stadium names are actually more for local or regional exposure than national or international branding. This is the case with Reliant Stadium in Houston, which is named for the local electrical and energy service company. While Reliant’s parent company, NRG (NYSE: NRG), is a Fortune 500 corporation and has no need for local branding, it must believe there is a value to Reliant’s brand promotion. It has 1.5 million customers in the Texas.

The final reason for purchasing naming rights is personal. Lucas Oil purchased naming rights to the football stadium in Indianapolis mostly because founder Forrest Lucas was born there. The company actually provides oil and performance car products, and it also sponsors a number of sports cars. It is easier to see why a car oil company would do auto branding rather than have its name on a stadium. But Lucas has the wealth to put his name on almost anything he pleases, as long as the branding rights are available.

It is impossible for a company to determine the return on investment it makes when it attaches its name to a stadium for an amount that is often more than $100 million with a term of several decades. The sponsor has no way of telling whether the teams that use the stadiums will do well, or whether attendances will remain high. But like many forms of branding, it is part of a larger strategy to keep the name of a product, or a company, in the consumers’ minds. One way to accomplish that is to put it in front of the millions of people who see the stadium in person or in the media.

Alcatel-Lucent SA (NYSE: ALU) Cut to Underperform at Jefferies.
Anadarko Petroleum Corporation (NYSE: APC) Started as Overweight at Morgan Stanley.
Intel Corporation (NASDAQ: INTC) Raised target to $30 from $28 at Credit Suisse; Reiterated Hold at Canaccord.
Juniper Networks, Inc. (NYSE: JNPR) Cut to Market Perform at Wells Fargo.
LinkedIn Corporation (NYSE: LNKD) Started as Neutral at Lazard.
NRG Energy, Inc. (NYSE: NRG) named Bear of the Day at Zacks.
Nucor Corporation (NYSE: NUE) Started as Outperform at Wells Fargo.
Steel Dynamics Inc. (NASDAQ: STLD) Started as Market Perform at Wells Fargo.
Steven Madden, Ltd. (NASDAQ: SHOO) Started as Buy at Citigroup.
United States Steel Corporation (NYSE: X) Started as Market Perform at Wells Fargo.
Wal-Mart Stores, Inc. (NYSE: WMT) named Growth & Income stock of the day at Zacks.
Whole Foods Market Inc. (NASDAQ: WFM) Raised to Buy at Jefferies.
Zale Corporation (NYSE: ZLC) Raised to Buy at BofA/ML.

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JON C. OGG

Glori is not an alternative energy investment.  The company’s technology helps extract trapped oil from mature oil fields.  The aim is to significantly boosting well production, and of course this could also be used to extract oil from other fields whose yields have been previously deemed too low to be worth reinvesting in.

Specifically, Glori revives oil fields with depleting production volumes and it can reclaim oil at a fraction of the cost of drilling new wells.  The release this morning shows that conventional oilfield technology typically extracts only about one-third of all discovered oil and much of the oil discovered remains underground. Glori Energy’s AERO System is said to extract an additional 30% to 45% of the oil beyond what is drilled from traditional processes.

The company noted, “Glori Energy’s methodology introduces a customized mix of safe nutrients into waterflooded oil fields to stimulate the growth of indigenous microbes which temporarily modify the fluid pathways to redirect water and improve oil mobility.”  It also said the the company customizes its treatments to optimize the microbiology of each oil field.

JON C. OGG

What’s interesting about this deal, from an alternative energy standpoint, is that it shines a light on efforts to allow alt-energy companies to adopt the MLP structure as a way to attract private investment into the sector. This could be a very interesting way to get government out of the business of financing clean energy projects.

A report issued last November by the Center for American Progress and the Coalition for Green Capital recommended that allowing renewable energy to form partnerships similar to MLPs and REITs.  By law, MLPs must derive at least 90% of their income from eligible investments in natural resources, commodities, or real estate. The report argues that renewable energy sources such as wind and sunshine are among the natural resources that should be considered for inclusion.

The problems that the recommendation is trying to solve are the lack of certainty in both the tax code and public policy related to renewable energy financing, and the lack of long-term, low-cost financing available to renewable energy businesses. Allowing MLP structures is only a piece of a the report’s overall recommendations for financing renewable energy, but it’s worth a closer look by itself.

One benefit of this approach is that it does not rely on setting a price for carbon. Cap-and-trade proposals have gotten no traction in Congress and proposals for a carbon tax are even less popular. Where the clean energy MLP idea may have the best application is in the transmission and distribution of renewably-generated electricity. In other words, the grid.

The estimated cost to upgrade the US grid ranges from $500 billion on up. Any chance that the federal government will be able to provide that amount of support directly or in the form of loan guarantees is certainly no better than 50-50. More likely is that concern about federal deficits and debt will push renovation and construction of the grid out for years.

Allowing an MLP/REIT-type setup could serve two purposes. First, it is effectively a corporate tax cut. This concept is very popular with some politicians. Second, it is a tax increase on investors, a concept which is quite popular with other politicians. Both sides could claim victory. From a political perspective, what could be finer?

Second, it could lead to a privatization of the national grid. That may not be a universally popular idea, but its merit is that it eliminates the federal government’s responsibility for paying out gobs of money it does not have and it would instill some certainty into renewable energy projects. Federal and state regulation would still exist, of course, but the virtually guaranteed return on investment that comes with MLPs and REITs could be very attractive to investors.

There probably won’t be much action on this idea until after the 2012 elections. But its simplicity and attractiveness to both ends of the political spectrum may give it a chance of being adopted.

If you think that alternative energy financing is dead, let us consider this week’s other big deal.  With a Department of Energy-backed loan, Bank of America Corporation (NYSE: BAC) is financing a massive project that is being undertaken in solar where PV modules are being installed on top of buildings owned and operated by Prologis (NYSE: PLD) and being installed by NRG Energy, Inc. (NYSE: NRG).  The beat goes on.

Paul Ausick

The ETFs include Utilities Select Sector SPDR (NYSE: XLU), iShares Dow Jones US Utilities (NYSE: IDU), Rydex S&P Equal Weight Utilities (NYSE: RYU), and Ulta Utilities ProShares (NYSE: UPW). The closed-end funds we looked at include Cohen & Steers Utility Fund Inc. (NYSE: UTF), Reaves Utility Income Fund (AMEX: UTG), Wells Fargo Advantage Utilities and High Income Fund (AMEX: ERH), and DNP Select Income Fund, Inc. (NYSE: DNP). The mutual funds we looked included Invesco Utilities Investor (FSTUX), Rydex Utilities (RYAUX), and Franklin Utilities A (FKUTX).

The utilities sector posts a price/earnings ratio of 18.50, higher than the tech, financial, conglomerates, and materials sectors. The sector’s return on equity is the lowest of all but the financial sector, but its dividend yield of 3.94% is higher than any other sector.

Utilities Select Sector SPDR (NYSE: XLU) holds net assets of $4.33 billion and it’s year-to-date return is 6.81%, while its yield is 3.94%. XLU’s three largest holdings are Southern Company (NYSE: SO) at 8.32.% of assets, Exelon Corp. (NYSE: EXC), and Dominion Resources, Inc. (NYSE: D). The fund’s 52-week range is $27.92-$34.30, and it closed last week at $33.19. Shares are up about 18% in the past 12 months and about 19% from the annual low.

iShares Dow Jones US Utilities (NYSE: IDU) claims net assets of $511 million and its year-to-date return is 7.94%, while its yield is 3.57%. It’s three largest holdings are also Southern Company (6.39%), Exelon, and Dominion. The fund’s 52-week range is $67.94-$84.54, and it closed last week at $81.85. Shares are up nearly 20% in the past 12 months, and about the same from the annual low.

Rydex S&P Equal Weight Utilities (NYSE: RYU) has net assets of $24.5 million, and its year-to-date return is 7.48%, while its yield is 3.27%. Its top three holdings are Constellation Energy Group, Inc. (NYSE: CEG), which is being acquired by Exelon, at 2.7% of total assets, NRG Energy, Inc. (NYSE: NRG), and NiSource Inc. (NYSE: NI). RYU also includes some communications stocks, such as MetroPCS Communications, Inc. (NYSE: PCS) and Verizon Communications (NYSE: VZ). As its name would lead you to believe, its tenth-largest holding accounts for 2.54% of total assets. The fund’s 52-week range is $43.51-$56.28, and it closed last week at $54.47. Shares are up about 24% in the past 12 months and about 25% from the annual low.

ProShares Ultra Utilities (NYSE: UPW) has net assets of $14.45 million, and its year-to-date return is 15.65%, while its yield is 2.32%. Its top three holdings are Southern Company at 5.62%, Exelon, and NextEra Energy, Inc. (NYSE: NEE). The fund’s 52-week range is $32.19-$50.52, and it closed last week at $47.37. Shares are up about 45% in the past 12 months and about 47% from the annual low.

The fate of the Vermont Yankee nuclear power plant owned by Entergy Corp. (NYSE: ETR) remains undecided, but not inactive. The company has filed suit in federal court to prevent the state of Vermont from shutting down the plant when its original license expires on March 12, 2012. The US Nuclear Regulatory Commission granted the plant a 20-year extension to its operating license, but the state has refused to extend its operating permit.

Entergy wants a temporary injunction preventing the state from slowing or stopping operation of Vermont Yankee while the suit is being considered, and it also wants a ruling that would prohibit the state from closing the plant. Entergy agreed to comply with state review requirements when it bought the plant in 2002, but now claims that the state changed the rules in 2006 by requiring the state legislature to approve an extension before the state public utilities commission could grant an operating permit.

Entergy tried to sell the plant, but found no takers. This story has a ways to run yet, and the central issue — do the states or the feds control nuclear power licensing — may not be decided for years.

From a nuke trying to remain in operation to a new nuclear project that has apparently been killed. NRG Energy, Inc. (NYSE: NRG) has announced that it will write down approximately $481 million in connection with its development of two new nuclear generation plants at its South Texas Project. The write-down will be taken as a pre-tax charge in the company’s first quarter earnings.

NRG is blaming the nuclear disaster in Japan for the move, saying that the Japanese incident has injected “multiple uncertainties around new nuclear development” in the US. NRG and its partner, Toshiba, will continue to seek licenses, loan guarantees, and customers for the new nukes. The bad news is that the suspension of engineering work will cause the company to reduce its workforce. NRG did not specify how many employees would be let go, but did say that it expects one-time charges of more than $20 million in its second quarter.

The 420-megawatt Cape Wind project in Nantucket Sound has received construction approval from the US Bureau of Ocean Energy Management, Regulation, and Enforcement. The project comprises 130 turbines to be installed about five miles from the coast. No construction starting date has been announced, and there are sure to be further legal challenges before construction begins.

Finally today, the Boeing Co. (NYSE: BA) will install 2.6 megawatts of solar PV panels on the roof of its new 787 assembly plant in South Carolina. The plant will be a 100% renewable energy site once the solar panel installation is complete. It will be the sixth largest solar PV installation in the US, and will use thin-film solar laminate panels. Boeing did not say which company would supply the panels, but “thin-film” usually means First Solar Inc. (NASDAQ: FSLR).

Paul Ausick

Berkshire Hathaway (NYSE: BRK.B) took a big hit in the news as shareholders sued over Sokol trades in Lubrizol. American Electric Power and NRG both pulled bad press over nuclear power facilities. Harley Davidson was hammered by the press because of bad earnings

The Flame Index started as a research tool in 2008 at the NY Innovation Design Lab (nyidlab). It was used as a general metric to evaluate companies and their risk in the media. Publicly traded Fortune 500 companies are used as a measure to calculate an overall market of negative news and the companies are ranked within that market

Data and ranking provided by the Flame Index.