JPMorgan On Why Black Hills Is A 'Solid Execution Story With Upside'

JPMorgan views Black Hills Corp BKH as "solid execution story with upside," while rating the diversified energy company Overweight with a $62 price target.

Despite the stock gaining 23 percent this year, analyst Christopher Turnure sees outperformance in shares over the next 12 months, driven by benefits from merger execution, and value creation from E&P business from asset sales and cost of service rate-basing.

Turnure noted the company would also benefit from non-synergy related utility load, customer and rate base growth with rider-recovery play out.

"Utilities worth $57 with achievable synergies, now contributing 85% of EPS," Turnure wrote in a note.

The analyst continued that regulated growth should benefit from three large electric projects early next year, growth in industrial load and gas customer growth; other rider revenues and high-cost debt refinancing over the next three years.

Noting that a successful merger execution could drive upside, the analyst said, "Since there is significant overlap in the legacy BKH and the acquired SourceGas service territories, we see similar synergistic reductions as theoretically attainable for the company in near term."

In addition, Turnure added that the company's gas cost-of-service is a potential monetization option and utility tailwind as he expects this segment continues to lose money at current commodity prices.

According to TipRanks, Turnure has a success rate of 53 percent with an average return per recommendation of +1.7 percent. The analyst is ranked 1,678 out of 3,907 analysts.

Shares of Black Hills closed Monday up 2.22 percent to $58.02.