Jefferies Lowers Price Target on El Paso (EE), Comments on City Councils Proposal

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EE Hot Sheet

Rating Summary:
3 Buy, 2 Hold, 0 Sell

Rating Trend:

Up

Today's Overall Ratings:
Up: 20 | Down: 11 | New: 38

Jefferies is maintaining its Hold rating on shares of El Paso Electric Company (NYSE: EE) and is lowering its price target by $1 to $33.50 following a City Council members, Courtney Niland, proposal to open a rate case against the utility, arguing that EE's rates could may down and the franchise fees its pays could go up.

Management noted that the TTM ROE for all of El Paso was roughly 12 percent during the second quarter conference, when in fact management believes that it is closer to 10.2 percent due to the differences between GAAP and regulatory accounting and adjustments for non-recurring items such as weather.

An analyst at Jefferies highlights, "If the City Council were to initiate a rate proceeding El Paso Electric would likely base its filing on a test year ending September 30, 2011. The company has 120 days to file and the City Council has 180 days to issue a final decision. The City Council would have a final decision roughly in a year time. The City Council’s decision can be appealed to the Public Utility Commission of Texas."

Jefferies currently forecasts EPS for 2011, 2012, and 2013 of $2.50, $2.40, and $2.55.

Norman Gordon will review the company's earnings and make a recommendation as to whether El Paso Electric should or should not file a rate case. The recommendations will be presented to the City Council on August 30th or in September.

For more ratings news on El Paso Electric Company click here and for the rating history of El Paso Electric Company click here.

Shares of El Paso Electric Company closed at $33.31 yesterday, with a 52 week range of $22.02-$35.65.

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