One Way To Play A Detroit Renaissance

Detroit has faced unprecedented economic hardship in recent decades, but the city’s recovery could provide some major openings for opportunistic investors.

In a new report, Macquarie Research analyst Andrew Weisel discussed one way that investors can play the Detroit bounce-back: DTE Energy Co.

Catalyst

DTE has a highly-anticipated analyst day coming on September 28, and Weisel believes that the likelihood of post-event upward analyst estimate revisions is high. In particular, he believes that attendees will be pleased with the company’s capex outlook and sees further upside to the company’s earnings projections on Utica strength.

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What To Expect

So far this year, DTE has seen the largest upward EPS estimate revisions of all SMID regulated utilities for the 2015-2017 period (+2.5 percent). Macquarie believes that the company will issue 2016 guidance of 5.0 percent year-over-year (Y/Y) earnings growth to $5.01 per share, higher than consensus expectations of only $4.97.

In addition, Weisel is looking forward to updated longer-term guidance from the company.

Politics

Weisel also believes that updates on the political front from the governor, the mayor and others will provide some insight into the state of the Detroit economy and what type of regulatory environment DTE should expect in coming years.

As far as Governor Snyder is concerned, Macquarie is expecting that he will stay true to his previous emphasis on renewable energy, energy efficiency and increasing requirements for competitive energy retailers.

Outlook

In the report, Macquarie reiterated its Outperform rating on DTE and maintained its $89 price target on the stock. The firm based its target on a sum-of-the-parts analysis of DTE’s business segments.

Disclosure: The author holds no position in the stocks mentioned.