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Jefferies raises view on El Paso Electric to 'hold'

Citing valuation, Jefferies LLC on July 14 upgradedEl Paso Electric Co.shares to "buy" from "hold" and raised the price target to$52.50 from $47.

"The stock is currently at a 7% discount to our small capgroup average P/E multiple although the company has above average load growthand is clearing up its regulatory calendar," said analyst AnthonyCrowdell.

Crowdell expects the Public Utility Commission of Texas toapprove a non-unanimous settlement in its ratecase that would grant El Paso Electric an ROE at around 9.7%. The company'sissuance of its 2016 guidance is dependent on the resolution of this Texas ratecase, which has been delayed by solar interveners over their opposition to afixed $11 per month charge.

"Rooftop solar penetration in [El Paso Electric's]service territory is less than 1% of customers but with the backing of thePublic Utility Counsel these customers have been able to delay the proceeding,"Crowdell said, noting Jefferies anticipates an order in either the third or thefourth quarter.

Jefferies maintained its 2016-18 EPS estimates of $2.50,$2.60 and $2.70, respectively, and initiated a 2019 estimate of $2.90.

"Our 2019 EPS estimate assumes the company earns a 9.7%ROE in both its Texas and New Mexico jurisdictions," Crowdell said.