Jefferies: Buy PNM Resources, It's 'Not The Old New Mexico'

In a report published Wednesday, Jefferies analysts upgraded the rating on

from Hold to Buy, while raising the price target from $29 to $30.50, after visiting New Mexico. PNM is a holding company of regulated electric utilities. The company's share price has declined 15 percent since January this year. "We believe that PNM's shares are trading at a 10% discount to our 2018 small cap regulated utility group average multiple," the analysts mentioned. In the report Jefferies noted, "The company will ultimately receive approval for its BART (best available retrofit technology) stipulation agreement which deals with the utility's plan to comply with a Revised State Implementation Plan (RSIP) regarding the operation of the San Juan coal-fired power plant." "...the company will receive approval for this agreement in the June/July timeframe which will maintain the company's CAPEX forecast and its 7-9% EPS growth through 2019," the analysts added. The denial of the stipulation agreement by the regulators will mean PNM retiring all its San Juan units which will be detrimental for the community. This is important in view of high unemployment levels in New Mexico, of 6.1 percent. The analysts believe that the "economic consequences" of closing a coal plant in a struggling economy would "outweigh environmental concerns." PNM is also expected to re-file its General Rate Case or GRC in September.