Deutsche Bank Raises Price Targets on Top Conservative Utility Stocks

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If there was ever a day that makes investors think about buying utility stocks, it was Tuesday. While many have said it is time to sell bond proxy investments like utilities and real estate investment trusts as rates are headed higher, the reality is when rates do go higher, it will be at a snail’s pace. So buying top utility stocks now still makes good sense for conservative accounts.

In a new research report, Deutsche Bank notes that the PJM Interconnection, which is a regional electricity transmission organization in the United States that serves 14 states and the District of Columbia, completed its long-anticipated capacity performance auctions earlier this month. The auctions were in-line with consensus, while the 2018 and 2019 auction provided upside for those on PJM’s eastern and western borders.

With the final data in-hand, the analysts were able to reset their models, and four stocks came out as the big winners. Three of those stocks are rated Buy at Deutsche Bank and we highlight them here.

American Electric Power

American Electric Power Co. Inc. (NYSE: AEP) is one of the largest electric utilities in the United States, delivering electricity to more than 5.3 million customers in 11 states. The company ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the country. American Electric also owns the nation’s largest electricity transmission system, a more than 40,000-mile network that includes more 765 kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.

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The Deutsche Bank team notes that the stock trades at a discount to its utility peers and they feel it deserves a premium. They also think the company will sell generating assets and buy back shares with the proceeds, which will be accretive.

American Electric Power shareholders are paid a solid 3.87% dividend. The Deutsche Bank price target goes to $63 from $62. The Thomson/First Call consensus target is $60.82. Shares closed on Tuesday at $54.72.