Little Net Impact on Utilities With Trump

We are reaffirming the fair value estimates, moat ratings, and moat trends for all utilities we cover following the U.S. presidential election outcome. We continue to think utilities are 6% overvalued, and we don't plan any material changes to our forecasts.

President-elect Donald Trump has been an outspoken advocate for natural gas and coal, which likely will keep gas and power prices low. We expect gas demand will continue growing, supporting infrastructure investment and earnings growth for many utilities. We think Dominion Resources and Duke Energy will benefit the most from gas-related infrastructure growth. Low gas and power prices will continue to make the economics challenging for coal and nuclear generation, hurting utilities like Exelon.

Environmental regulations, notably the U.S. Environmental Protection Agency’s carbon-focused Clean Power Plan, likely are dead at least for the next four years. This reduces risk for fossil-fuel generators like Dynegy , NRG Energy, and Calpine. We think all three are undervalued. We always considered CPP implementation too uncertain to incorporate in our fair value estimates, and the election results validate our assumption.

We think renewable energy growth, especially wind energy, will continue despite the election rhetoric. State-level laws and regulations are driving most renewable energy investment, and we don’t expect that to change. We also think it is unlikely Congress will repeal the renewable energy tax credits. A pro-manufacturing agenda should help the wind energy supply chain that has developed in the U.S.

We think the sell-off of renewable energy leader NextEra Energy could be a buying opportunity if it trades below our $111 per share fair value estimate. We expect its huge wind pipeline that drives part of our growth outlook will remain intact. Its growth could even accelerate during the next few years to lock in current tax benefits.

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