Entergy Lowered to Neutral - Analyst Blog

By
A A A

We have downgraded our recommendation on Entergy Corp. ( ETR ) to Neutral from Outperform on Jan 28, 2014. The company currently has a Zacks Rank #3 (Hold).

Why the Downgrade?

The downgrade was based on the negative verdict from the Mississippi Public Service Commission (MPSC) related to the proposed spin-off of Entergy Mississippi's electric transmission business and its subsequent merger with a subsidiary of ITC Holdings Corp. ( ITC ). MPSC rejected the transaction on the ground that it is not going to be a lucrative move for Mississippi customers. The approval of the deal would lead to an increase in the electricity rate for Mississippi customers by $300 million over 30 years.

Going back, in Dec 2011, Entergy had entered into a definitive agreement with ITC Holdings to sell its electric transmission business to the latter for approximately $1.8 billion.

Per the agreement, Entergy would have divested its electric transmission business to a newly formed entity known as Mid South TransCo LLC ("Transco"). Post merger, Entergy was supposed to have an approximately 50.1% stake in ITC Holdings in exchange for their shares in TransCo. The existing shareholders of ITC Holdings would have held the remaining 49.9% stake of the combined entity.

Entergy intended to utilize a major part of the cash proceeds from the transaction to redeem debt. Apart from boosting its earnings, the transaction would have allowed the company to focus more on its power generation and distribution businesses.

Despite the negative sentiment from the proposed merger denial, we believe Entergy is well positioned on the strength of its geographically-diversified mix of regulated and merchant operations. This insulates the company from regulatory bottlenecks and power-price volatility in any particular region, helping the company to achieve its targeted annual compound earnings growth of 6% in the next five years.

Stocks to Consider

Stocks in the industry that are worth the pick include Zacks Ranked #1 (Strong Buy) National Grid plc ( NGG ) and NRG Yield, Inc. ( NYLD ).



ENTERGY CORP (ETR): Free Stock Analysis Report

ITC HOLDINGS CP (ITC): Free Stock Analysis Report

NATL GRID -ADR (NGG): Free Stock Analysis Report

NRG YIELD INC-A (NYLD): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: ETR , ITC , NGG , NYLD

Zacks.com

Zacks.com

More from Zacks.com:

Related Videos

Stuck
Stuck                               
Yoga Surfer
Yoga Surfer                         

Stocks

Referenced

Most Active by Volume

89,851,277
  • $17.05 ▲ 0.12%
61,694,953
  • $39.05 ▲ 1.03%
61,622,467
  • $102.64 ▲ 1.56%
56,476,509
  • $3.48 ▼ 1.14%
49,282,352
  • $5.31 ▲ 3.91%
37,301,083
  • $87.17 ▼ 3.03%
36,192,897
  • $78.29 ▲ 1.94%
33,401,171
  • $38.83 ▼ 1.89%
As of 9/23/2014, 04:15 PM

Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com