Southern, CMS cut to Sector Weight at KeyBanc in utilities shuffle
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Southern Co. (NYSE:SO) and CMS Energy (NYSE:CMS) were downgraded Thursday to Sector Weight from Overweight at KeyBanc on valuation, in an otherwise optimistic take on the utilities sector (NYSEARCA:XLU), which the firm said should remain a favored investment choice as investors recession-proof their portfolios.
KeyBanc sees H2 as a busy period for Southern, as it works on completing Vogtle Unit 3 and files a GRC by mid-year, while the November election in Georgia holds many uncertainties: "Given the number of moving parts, both company specific and state-wide, we prefer to move to Sector Weight for now."
CMS remains a premium utility and trades as such, at the highest multiple of the large-cap regulated utilities in KeyBanc's coverage; the stock now trades at over a 3.5x premium to the group, "in line with its historical premium, thus justifying the downgrade."
In the broader utilities sector, KeyBanc said it prefers to "focus on regulated names that offer either above-average quality/stability or offer attractive value, as we believe these characteristics will be particularly attractive in the current environment."
As such, the firm raises its stock price targets by ~10% for First Energy (FE) - which remains a "key idea... as the company strives to restore its position as a premium utility" - CenterPoint Energy (CNP), Constellation Energy (CEG), Dominion (D), Duke Energy (DUK), Exelon (EXC), NextEra Energy (NEE), Xcel Energy (XEL) and Enphase (ENPH).
Southern is "a great investment for people looking for yield, safety and moderate capital gains," Leo Nelissen writes in a bullish analysis published on Seeking Alpha.