How Credit Suisse Views Utilities for 2015 and Beyond

Regulated utilities received a lot of generalist analyst calls to outperform near the end of the third quarter. Credit Suisse’s Dan Eggers revisited what makes the bullish case for regulated utilities in a new report. What is interesting here is that some investors will interpret this as how to view issues in utilities stocks for 2015 and perhaps beyond.

Eggers said that it is hard to make a strong case for regulated utilities at this point because the attractive relative valuation arguments that Credit Suisse has made over the past couple months have happened. The stocks no longer offer the same cheapness against the S&P 500, having shifted from a 5% to 7% discount to a minor premium. Credit Suisse’s preferred exposures remain CMS Energy Corp. (NYSE: CMS), Dominion Resources Inc. (NYSE: D) and PG&E Corp. (NYSE: PCG). This group of stocks is not expensive, compared to the S&P 500 or to bonds, but the seeming expensiveness of equities and bonds gives some pause to Credit Suisse.

  • CMS Energy is rated Outperform at Credit Suisse with a $32.00 price target. That is $1 less than the current share price, and CMS yields 3.3%.
  • Dominion Resources is rated as Outperform with a $78 price target at Credit Suisse. That is versus close to $74 currently and to a 52-week range of $63.00 to $74.59. Dominion yields 3.2%.
  • PG&E has an Outperform rating and $53 price target from Credit Suisse. Its 52-week range is $39.42 to $51.46 and it has a 3.6% dividend yield.

So far in the fall, and for 2014, utility stock performance has been great, but regulated utilities are not the stars that some investors think they might be as they lag behind integrated utilities. Regulated utilities are still in a hole from the second half of 2013, when the relative price-earnings (P/E) ratio went from a 23% premium to a 5% discount, to a now market multiple, since April 2013.

ALSO READ: GE Ready to Sell $2 Billion in Stock Directly to the Public

Sponsored: Tips for Investing

A financial advisor can help you understand the advantages and disadvantages of investment properties. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Investing in real estate can diversify your portfolio. But expanding your horizons may add additional costs. If you’re an investor looking to minimize expenses, consider checking out online brokerages. They often offer low investment fees, helping you maximize your profit.