Infrastructure

Utility Gains Look Tired, Deutsche Bank Still Has 3 to Buy

Lee Jackson

Published: May 19, 2016 9:50 am

Last Updated: January 13, 2020 7:51 am

Well, it was good while it lasted, and boy did it ever. In the past five years the Dow Jones Utility Index is up a stunning 65%, and if you add the stock price gains with the dividends, it is probably one of the greatest total return trades of the past 20 years. But like all good things, this long run is probably close to over, and with the specter of rising rates coming eventually, many shares are fully valued.

In a new research report, while Deutsche Bank focuses more on the upcoming PJM auction, one thing seems very clear in their universe coverage of the sector: only a few stocks are still a good value at current levels. They do have three rated Buy for investors still seeking a safer path.

American Electric Power

This industry leader is also a solid dividend-paying company. 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. It ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the United States. It 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.

Many on Wall Street feel that the stock trades at a discount to its utility peers and they feel it deserves a premium. They also think the company may sell generating assets and buy back shares with the proceeds, which will be accretive.

American Electric Power shareholders receive a solid 3.55% dividend. The Deutsche Bank price objective for the stock is $66. The Thomson/First Call consensus target is $67.47. Shares closed on Wednesday at $63.30.

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