Bank Of America Downgrades Portland General Electric On Capex Concerns

Lower expectations for upside in capital expenditure made an analyst at Bank of America Merrill Lynch pessimistic on the prospects of Portland General Electric Company POR.

The Analyst

BofA Merrill Lynch analyst Julien Dumoulin-Smith downgraded Portland General Electric from Neutral to Underperform and lowered his price target from $41 to $39.

The Thesis

Portland General Electric's ability to own Wind through the 2018 request for proposal could be challenging, given the negative impact of the tax reform, and the uncertain competitive backdrop, Dumoulin-Smith said following BofA Merrill Lynch's Boston Power and Utilities conference and meetings it hosted in the New York City last week.

The analyst removed the opportunity completely from his estimates, although the Street is incorporating an 8 percent contribution to overall earnings per share.

"Rather, mgmt discussed two other upside sources of capex including battery deployment ($50-100Mn) as well as additional T&D spend typically updated on the 3Q18 conference call," the analyst said.

BofA now includes these two opportunities in its estimates, with a 50 percent probability. The firm believes spending outside "base capex" should be weighted following a series of heightened expectations surrounding rate base opportunities.

The T&D upside that is expected to support capex, can be achieved with only more rate cases, the firm said. Therefore, management will need to balance becoming serial filers, given the clear risk of rate fatigue.

As such, BofA lowered its estimates on removing the probability of a wind build, and consequently the price target for shares.

The Price Action

Portland GE shares were down about 11 percent over the past year. Shares were down 2.3 percent Tuesday to $39.38.

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