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Deutsche Bank downgraded PG&E Corp. (NYSE: PCG) and Firstenergy Corp. (NYSE: FE) from Buy to Hold, with $39 and $58 price targets, respectively.
The firm said, "Risks to PCG's 8% growth, ~10% peer valuation premium, healthy 1,300 bps of relative LTM outperformance compared to its large cap regulated utility peers, substantial 4,000 bps of outperformance compared to the S&P 500 and our cautious view on the Regulated Utilities cause us to change our view on PCG. While FE is not expensive, we see better risk – return and transparency in other Diversifieds whose valuation is not partly predicated on power price premiums for operating as the majority electricity producer in their own illiquid service territory."
The firm has a 'marketweight' on Diversifieds Utilities, with top picks in the sector PPL Corporation (NYSE: PPL) and Allegheny Energy Inc. (NYSE: AYE).
The firm is 'underweight' Regulated Utilities, but said there is still some value in the sector. American Electric Power Co., Inc. (NYSE: AEP) and CMS Energy Corp. (NYSE: CMS) are their top picks for Regulated Utilities.
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