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Deutsche Bank Upgrades Spectra Energy (SE) to Buy after Asset Drop Downs

June 12, 2013 7:06 AM EDT Send to a Friend
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Price: $41.66 --0%

Rating Summary:
    5 Buy, 7 Hold, 0 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 0 | Down: 0 | New: 0
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Deutsche Bank upgraded Spectra Energy (NYSE: SE) from Hold to Buy with a price target of $36.00 (from $32.00) on news the company would pursue the drop down
of all of its US Transmission and Storage assets in deals to be approved and by the Boards of SE and SEP in August and completed by year-end.

Analyst Curt Launer comments, "We model the US Transmission and Storage business as having about $1.192 billion in ebitda for 2013 and $1.225 billion for 2014. Combining this with the already announced drop-down of the liquids business adds another $145 million to drop-downs for the year. We expect SEP to fund the deals with debt and equity and that the largest proportion will be units issued to SE that will significantly boost the SE ownership of SEP above the current 64% level to about 75%."

The company expects the transactions to result in an increased dividend growth rate of $0.12 per year. At SEP, an increase in the distribution growth rate from $0.03 per year to $0.04 per year was projected, the firm notes.

"With SEP in the high-splits of the IDRs, SE will receive 50% of the incremental cash flow from the drop-downs, boosting the percentage of its cash flows from its MLP from the current level of 8% to over 50%," Launer notes. "Based on the expected dividend of $1.42 per share for 2014 and a target yield of 4.0% we are raising our target price for SE from $32 to $36 and raising our rating to Buy."

For an analyst ratings summary and ratings history on Spectra Energy click here. For more ratings news on Spectra Energy click here.

Shares of Spectra Energy closed at $30.32 yesterday.




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