Jefferies Lowers Price Target on Allegheny Energy (AYE)

Jefferies & Company is out with a research report this morning, where it reiterates its Hold rating on Allegheny Energy

; it also lowered its price target to $23.50, from $24.50. The Jefferies analysts said that they think Allegheny Energy is fairly valued using a 5% discount to the merger offer price. Under the agreement, Allegheny shareholders would receive 0.667 shares of FirstEnergy stock for each share of Allegheny they own. The analysts added that the decrease in power and natural gas prices makes FE and AYE transaction dilutive in the first full year of combined operations. The transaction would be accretive in the outer years only if the companies are able to achieve a high level of operational savings. As for valuation, the analysts remarked, “Our price target of $23.50 is based on a 5% discount to the merger offer price. Under the agreement, Allegheny shareholders would receive 0.667 shares of FirstEnergy stock for each share of Allegheny they own. Shareholder vote is schedule for 9/14/10.”