Wunderlich's Utilities M&A Prediction: ITC Holdings Sale 'Likely,' We'll Know Bidder By Mid-2016

• Shares of ITC Holdings Corp. ITC have appreciated 24.82 percent over the past three months, reaching $40.07 on January 6.
• Wunderlich’s James L. Dobson has upgraded the rating on the company from Hold to Buy, while raising the price target from $34 to $45.
• Of the strategic alternatives listed by the company on November 30, Dobson believes that a sale was the most likely outcome, although ITC Holdings was unlikely to announce its decision till mid-2016.

Analyst James Dobson mentioned that “slowing growth in the U.S. utility sector, ITC's concentrated and unique assets, potential international utility interest, and favorable FERC regulation all point toward a sale of ITC.”

Dobson also pointed out that the company’s CEO owned a significant amount of shares and was approaching retirement age. The odds in favor of a sale were estimated at about 75 percent, while the value was estimated at $45-$47 per share.

Although there is limited visibility into the process, Dobson expects several large public utilities, both U.S. and international, to participate in the sale.

“Though it is difficult to identify the entity most likely to win the process, we believe ITC's cash flow generation, growth potential, and regulatory construct will support an attractive value for the seller,” Dobson added.

According to the Wunderlich report, there was limited regulatory risk to a sale and that strategic buyers would be comfortable with any FERC regulatory risk.