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Wednesday's Energy Stocks: Markets, sector retreat after tax bill passage

Broader markets closed lower Wednesday, Dec. 20, after the passage of the Republican-sponsored tax reform plan. On Dec. 20, the U.S. Senate voted 51-48 to pass the bill, and the House held a second vote to pass an an updated version of the bill.

The Dow Jones Industrial Average dipped 0.11% to close at 24,726.65, and the S&P 500 fell 0.08% to end the day at 2,679.25. The SNL Energy Index declined 0.54% to 284.59.

Wells Fargo LLC said in a Dec. 20 research note that the lower corporate rate included in a final tax reform bill from Congress will be a "net positive" for regulated utilities.

Wells Fargo said companies with a "material positive disposition" on the tax reform bill include Exelon Corp., which declined 1.46% on strong volume to end at $39.04; Public Service Enterprise Group Inc., which shed 0.66% in above-average trading to close at $50.98; and DTE Energy Co., which fell 0.70% on light volume to finish at $108.25.

Companies with negative exposure include Duke Energy Corp., which settled 0.61% lower in light trading to $84.49, and FirstEnergy Corp., which retreated 1.35% on weak volume to conclude the day at $30.59. Those with negative exposure can mitigate the impacts of tax reform through cost-cutting, capital expenditure hikes and greater capital efficiency, among other actions, the report said.

Among other diversified utilities, PPL Corp. slumped 2.56% on about five times the average volume to close at $31.59 a day after it was downgraded by Macquarie Capital (USA). Edison International shares were down 2.22% to $68.30 in more than double average volume, and continued to decline in after-hours trading on Dec. 20.

Jefferies analysts noted in a Dec. 20 research report that the stage is set for investors to flock to the U.S. midstream energy sector in 2018. "We are optimistic 2018 will refocus investor attention on positive fundamentals and illustrate the operational leverage inherent across midstream systems," analysts led by Christopher Sighinolfi said.

Jefferies selected Plains GP Holdings LP/Plains All American Pipeline LP and the Williams Cos. Inc./Williams Partners LP composites as its top picks for the sector. Plains GP gained 1.67% in below-average trading to close at $21.88; Plains added 1.36% on slightly lower-than-average volume to end at $20.86; Williams Cos. dipped 0.03% in brisk trading to settle at $30.05; and Williams Partners closed 0.54% lower in active trading to $38.50.

LINN Energy Inc. will launch a tender offer to buy for cash up to 7,386,364 of its class A common shares, equivalent to about 8.8% of the outstanding common stock. At the end of the day's trading, the company climbed 3.43% on heavy volume to settle at $39.15.

In a repeat of prior-day trading, January 2018 natural gas futures started the Wednesday, Dec. 20, trading session on an uptick and ended lower. Early gains took the contract to a lower high at $2.756/MMBtu that failed to hold as sellers once again moved in to drive the contract to a $2.610/MMBtu low and finish down 5.5 cents on the day at $2.637/MMBtu.

Market prices and index values are current as of the time of publication and are subject to change.