Brexit Will Be Tailwind For Utilities; KeyBanc Raises Targets On 6 Stocks

Amid market uncertainty triggered by Brexit [UK’s exit from the EU], utilities would likely continue to outperform the broader market, KeyBanc’s Paul T. Ridzon said in a report. He added, “We believe the tone of the Federal Reserve will grow more accommodative, after the most recent commentary had already grown incrementally more dovish.”

Brexit Led Uncertainty

Recently, Fed’s tone had started to become more hawkish, with Brexit being considered unlikely to pass. Analyst Paul Ridzon mentioned, however, that with increased volatility and uncertainty due to Brexit, the Fed could stay away from hawkish remarks in the near term. He expressed optimism regarding the defensive nature and yield of the US utilities.

Brexit’s full impact on world markets is unlikely to be known for some time, Ridzon noted. He added that the US economy was also on “shaky footing,” with the recent softening of market indicators.

Following Brexit, the Fed has “backpedaled” about potential rate hikes in the near term, and “we would look for incrementally accommodative language around near to intermediate-term monetary policy,” the analyst wrote.

Utilities To Outperform

Utilities are likely to outperform “in a risk-off market,” Ridzon said, while adding, “Our bias in selecting utility names remains around regulated names with minimal merchant exposure.” He further commented that the preferred names had attractive capital opportunities, with generally supportive regulation.