Return Potential Expected In WEC Energy

• WEC Energy Group Inc WEC shares have declined by 10 percent year-to-date, and are currently trading close to the midpoint of their 52-week range of $42.53 - $58.01.
• Goldman Sachs analyst Michael Lapides maintained a Buy rating for the company, while adding it to the Americas Conviction List and raising the price target to $52.
• Lapides believes there is upside to consensus EPS estimates, which should drive above-average dividend growth.

Analyst Michael Lapides said that upside to the consensus EPS estimates is on account of potential cost management, debt reduction and higher regulated revenues. The potential cost management would be from the recent acquisitions of regulated electric and gas utilities in Wisconsin and Illinois and strong FCF would drive debt reduction.

There would be higher regulated revenues with limited regulatory lag in view of the incremental investment in the Illinois gas utilities, Lapides added. All these factors could drive above-average dividend growth of nearly 10 percent per year.

In the report Goldman Sachs noted, “Historically, WEC has traded at a sizable premium to peers, one we continue to view as warranted even after the acquisition of Integrys Energy Group (TEG), completed on June 29, 2015. Assuming 5%-7% EPS growth in 2016/2017 and 10%-12% dividend growth implies over 15% total return potential.”

The EPS estimates for 2015, 2016 and 2017 have been raised from $2.82 to $2.84, from $2.95 to $3.00 and from $3.16 to $3.19, respectively.