UPDATE: UBS Downgrades Entergy Corp (ETR) to Sell

(Updated - September 24, 2015 8:54 AM EDT)

UBS downgraded Entergy Corp (NYSE: ETR) from Neutral to Sell with a price target of $59. Analyst Julien Dumoulin-Smith thinks business is poised to shrink into year-end.

"We are downgrading to Sell primarily on our view of value at EWC. Further with risks lingering around sales targets, we have relatively less confidence in the story to work as a 'regulated' only story as well. Valuation is based on 2017E sum-of-the parts analysis," said Smith.

"After the latest disclosures of potential early retirements of Fitzpatrick (838MW) and Pilgrim (688MW) we are increasingly concerned about the unregulated plant value," continued the analyst. "Looking through ongoing petitions to close the plant, we emphasize Indian Point’s remaining life is finite too, with best case ~18-20 years assuming successful relicensing. Further, we suspect cash flows here too could yet get squeezed with declining energy and capacity prices amidst an inflationary cost structure. Subsequent relicensing to 80- yrs for the IP units appears off the table. "

Smith added, "Following previous quarters cautioning on execution on sales growth targets, we see downside in our regulated estimates, which remain at the high end of the guided 2015 and 2016 Net Income utility ranges. Shares could remain under pressure into 3Q and EEI updates, as both utility expectations and nuclear EPS could moderate on higher costs. We understand Fitzpatrick will not likely see the same need for a reliability agreement or future transmission planning akin to Exelon's Ginna unit in New York. Following the NRC's downgrade of the Pilgrim plant we see a potential material increase in compliance/remediation costs as increasing discussion of early retirement into the next refueling in Spring 2017."

For an analyst ratings summary and ratings history on Entergy Corp click here. For more ratings news on Entergy Corp click here.

Shares of Entergy Corp closed at $63.54 yesterday.

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