Dynegy Investors: Here's Why Morgan Stanley Thinks Shares Will Outperform

In a report published Monday, analysts at Morgan Stanley initiated coverage of

with an Overweight rating and a price target of $41. The analysts believe that the company's cash flow yield and growth prospects are promising. The analysts expect the Dynegy to be able to achieve 12 percent FCF/share CAGR during 2015-2020, with the possibility of share buyback worth $1.7 billion during 2015-2019, at the present commodity prices or about 40 percent of the company's current market cap. The FCF/share CAGR is likely to be driven by merger synergies and share buybacks, even if there is no improvement in commodity prices. "Furthermore, if power, gas, or capacity prices rise in any of DYN's key markets, we forecast meaningful upside to cash flow and valuation. We see attractive risk-reward to shares at current levels," the analysts said. "DYN has substantial leverage to any improvement in gas, power, or capacity prices across its key markets," Morgan Stanley added.