Citing Dynegy Inc.'s high leverage and exposure to PJM Interconnection LLC and ISO New England Inc. capacity auctions results, UBS Securities LLC on Jan. 18 downgraded the company to "sell" from "neutral" and lowered the price target to $7 from $8.
"We stress that our expectations of disappointing PJM and ISO-NE capacity results in the upcoming auction will hurt DYN the most among [independent power producers] as we estimate the company derives ~75% of its EBITDA from these two regions on a 2019E basis," UBS analyst Julien Dumoulin-Smith said in a note to investors.
UBS also attributed the downgrade to a risk in Dynegy's 2017 guidance impacted by a delay in the approval of the company's proposed acquisition of ENGIE North America's power plant portfolio.
"We further emphasize that upside from the potential buyout by [Vistra Energy Corp.] could be challenged given a Spark Spread article reporting [Vistra Energy] was now evaluating a bid for [GenOn Energy Inc.]," the brokerage said in a report.
As of 2:51 p.m. ET, Dynegy was trading down 5.90% to $9.81.