Barclays Downgrades Entergy, Still Likes Dividend Yield And Strategy

Barclays' Daniel Ford downgraded the rating for

from Overweight to Equal-weight, while raising the price target from $75 to $76. Ford believes Entergy's stock is fairly valued and there is limited upside opportunity in the near future. An improved regulatory outlook and a shift in corporate strategy away from the merchant energy business segment have resulted in Entergy's improved valuation. The company is now expected to focus on executing growth and reducing regulatory lag at the regulated utility companies, Ford wrote, while adding that Entergy is now targeting Utility, Parent & Other segment earnings CAGR of around 11 percent in 2015-2018 by chalking out a capital investment plan aimed at replacing aging infrastructure. Entergy's 4.8 percent dividend yield will benefit long-term investors, the analyst said. He added, however, that the company needs to reduce the regulatory lag, implement its capital investment program including the timely completion of the acquisition of the Union Power Station, and improve its regulated and unregulated nuclear operations. Entergy reported 4Q15 and 2015 earnings of $1.58 and $6.00, respectively, up from the year-ago levels of $0.75 and $5.83. The EPS estimates for 2016-2018 have been raised to $5.26, $5.36 and $4.99, respectively, to reflect higher EWC net income resulting from the ongoing positive earnings impact of the Palisades impairment.