Morgan Stanley Downgrades SCANA On Toshiba And Construction Weakness

Morgan Stanley downgraded shares of SCANA Corporation SCG to an Underweight rating citing Toshiba Corp (USA) TOSYY and weakness in construction. The brokerage also kept a price target of $67.00 on the shares of the company.

Analysts led by Stephen Byrd cited the risk of future/continued delays in the new nuclear construction schedule, Toshibha's weak financial outlook and their "deep dive on the outlook for power demand" (where the brokerage sees risk to the expected growth).

"We have concerns about the financial strength of Toshiba, the owner of Westinghouse (the vendor chosen by SCANA to construct its new nuclear plant), even though we recognize that the fixed-price option afforded in the amended Engineering Procurement and Construction (EPC) contract with Westinghouse mitigates new nuclear construction risk," the analysts opined in a note to their clients.

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Morgan Stanley also pointed out their colleague's view on Toshiba's deteriorating financial condition. The threat of higher financial crisis meant that the brokerage "would become increasingly concerned about Toshiba/Westinghouse's ability to honor the terms of the EPC contract."

Furthermore, the brokerage thinks that its deep dive into the power demand growth highlighted the potential downside risk of EPS at SCANA for the current year. The analysts noted that SCANA's 2016 integrated resource plan included an assumed ~1.3 percent demand growth annually in 2016–20.

However, the analysts believe that there would be changes in future electricity demand drivers due to favorable economic conditions for energy efficiency, as well as, the trends favoring higher adoption of more energy efficient equipment.

On Thursday, the stock traded 0.5 percent higher at time of writing.