3/19/2010-Citigroup downgraded Integrys Energy (NYSE:TEG) from Hold to Sell with an increased $42 price target.
Analyst Faisel Khan remarked, "We are downgrading TEG to Sell from Hold on recent out performance, aggressive earnings guidance and valuation. Since the beginning of the year, TEG has materially out performed its peers (+11.6% vs. -0.8%). However, the stock was essentially flat until the company's analyst meeting in mid-February. Into the meeting, several investors were short TEG stock, driving a short squeeze when TEG announced improved '11 guidance and maintained the dividend. TEG trades at 14.7x '11 earnings (13.6x on consensus estimates) versus 12.1x for the peer group average.
Khan continued, "We are increasing our target price to $42 (from $40). Our target price and forward estimates now include TEG's retail gas and electric division, which have recently been taken off the selling block, and the return of capital ($250mm) related to TEG's upcoming wholesale divestiture. We estimate the retail business will add $0.30/share to '11 EPS. This compares to guidance of $0.50-$0.55, which we believe includes aggressive assumptions for volume growth and unit margins. Using P/E, which is the primary valuation metric for utilities, the stock is valued at $41."
For 2010, the bank expects the company to report EPS of $2.98, versus consensus estimates of $3.12.
Keywords: integrys Energy Citigroup Downgrade price target rating
Ticker(s): TEG
