Entergy cut to Sell equivalent at Morgan Stanley on climate change risk
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Morgan Stanley sees the risk-reward for select U.S. utilities as attractive relative to the broader market after significantly underperforming the S&P 500 last year, but it downgrades Entergy (ETR
-2%) to Underweight from Equal Weight with a $106 price target, citing "concerns about customer bill pressure and negative regulatory responses to physical damage from climate changes."

While Entergy offers some of the lowest utility rates in the U.S. and operates under favorable storm cost recovery mechanisms via securitization, Morgan Stanley's concern is that "as the frequency and magnitude of storm damages persists, the impact of the securitizations will become apparent in customer bills, which will inhibit longer-term capex plans and thus lower future EPS growth."
ETF: XLU

In addition to Entergy, Morgan Stanley says several utility stocks face physical risk from climate change, most notably PCG, EIX, SRE, NEE, ED, ES, AGR and FE.
Meanwhile, Morgan Stanley upgrades DTE Energy (DTE
+0.1%) to Overweight from Equal Weight with a $133 target, citing an above average and highly achievable growth profile and exposure to a favorable regulatory environment.
Also, the firm upgrades ONE Gas (OGS
+0.7%) to Equal Weight from Underweight with an $80 PT, noting limited risk of its Texas, Oklahoma and Kansas service territories moving away from natural gas.
A favorite utility at Morgan Stanley is Exelon (EXC
-0.4%), which it believes will trade at a premium to peers given the above average growth rate and wires-only business model.
Analysts at Mizuho cited uncertainty over the future of the Build Back Better legislative proposal in its recent downgrade of Exelon.