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An Analyst's Black Hills Corp. Outlook Dims On These Twin Risks

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An Analyst's Black Hills Corp. Outlook Dims On These Twin Risks

The potential implications of tax legislation and regulatory headwinds on the gas and electric utility Black Hills Corp (NYSE: BKH) led to a downgrade from Credit Suisse on Tuesday. 

The Analyst

Analyst Michael Weinstein downgraded Black Hills from Outperform to Neutral and lowered his price target from $66 to $60. The downgrade comes after shares outperformed peers by roughly 7 percent since December.

The Thesis

The net impact of the tax bill is one factor that could  contribute to a 15-cent drop in Black Hill's 2018 guidance, Weinstein said in a note. (See the analyst's track record here.)

Another negative catalyst Weinstein identified: " ... An accelerated ratecase schedule that is likely to pick up steam after the recent filing in Arkansas and subsequent dockets for tax review in Kansas and South Dakota." 

Credit Suisse expects another rate filing in Colorado in 2018 following a U.S. District Court ruling in Denver and follow-on regulatory reconsideration on the Pueblo CT rate treatment. 

A gas utility return on equity of 10.9 percent is projected by Credit Suisse, despite recent lowering of estimates and guidance on lower SourceGas load and revenue.

The shifting of $500 million in  parent debt away from Black Hills' capital utility structure calculations would bring EPS down 15 cents and reduce the gas utility ROE to 9.6 percent, Weinstein said. 

"We anticipate regulators across most BKH jurisdictions to require this interest cost shifting as they begin to review rates for the purpose of passing tax savings back to customers," Credit Suisse said.

The Price Action

Shares of Black Hills are down over 5 percent over the past year.

Related Links:

Credit Suisse Adjusts Its Top Picks List In A Record-Breaking Market

A Neutral View On A Big Utilities ETF

Latest Ratings for BKH

DateFirmActionFromTo
Jan 2021Credit SuisseMaintainsOutperform
Nov 2020B of A SecuritiesUpgradesNeutralBuy
Nov 2020Credit SuisseMaintainsOutperform

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