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Jefferies upgrades Entergy, downgrades El Paso Electric

Jefferies LLC revised its investment opinions on Entergy Corp. and El Paso Electric Co., which were rated at "hold" prior to Oct. 16.

Analyst Anthony Crowdell upgraded Entergy to "buy," raised the price target to $92 from $78 and made changes to his EPS estimates, according to an investor note. Crowdell raised his EPS estimate for Entergy to $5.08 from $5 for 2019, and established a $5.38 estimate for 2020, which excludes Entergy Wholesale Commodities.

"Our estimates assume ETR receives a favorable outcome in [Arkansas] based on our conversations with parties in the state and historical precedent, and that the discount multiple will approach the group average as the unregulated business is slowly exited," the analyst wrote.

Entergy is currently seeking a $129.7 million increase in electric base rates in Arkansas, based on a 9.75% return on equity and a 4.67% rate of return. On Oct. 4, the state Public Service Commission staff recommended a $126.2 million increase based on a 9.75% return on equity.

Crowdell said he expects the PSC decision on Dec. 13 to mirror the staff's recommendation.

Separately, Jefferies downgraded El Paso Electric to "underperform" and lowered the price target to $51 from $57 based on lower estimates due to an update of the its forecast model.

The EPS estimates were lowered to $2.45 from $2.65 for 2017, to $2.41 from $2.65 for 2018, and to $2.67 from $2.88 for 2019, according to the investor note.

"On our revised estimates the stock is trading at a 14% premium to its peer group and pays one of the lowest yields in the space. We believe Street estimates will adjust once management gives out 2017 guidance on its 3Q call later this month," Crowdell said.

El Paso Electric delayed the issuance of its full-year forecast until the release of the Public Utility Commission of Texas' final order on its 2017 general rate case.

The company originally requested a $42.5 million rate increase, based on a 10.5% return on equity. On Sept. 20, El Paso Electric reached a settlement in principle with the city of El Paso that provides for a $14.5 million increase and a 9.65% return on equity.