Pattern Energy Wind Project Acquisition Gets A Thumbs Up From BMO Analysts

BMO maintains its Outperform rating on Pattern Energy Group Inc (NASDAQ: PEGI) on improved drop-down acquisition growth and attractive valuation.

After almost a one-year lull in acquisition activity, Pattern Energy said it will be acquiring the 324MW Broadview wind project in New Mexico and associated 35-mile 345kV transmission line from Pattern Development.

"The acquisition is consistent with our view that Pattern Development (Riverstone) will be motivated to reduce drop-down valuations and support the PEGI shares," analyst Ben Pham wrote in a note.

"[W]hile near-term dividend growth may not hit the mid-teens, it should remain meaningful," Pham added.

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Further, the analyst noted the recent decline in long Treasurys not only improves the valuation on the company's operating assets (2.6GW), but could also increase accretion and growth from potential drop-down acquisitions. This creates more shareholder value.

"The Broadview drop-down was already in our estimates, but is more accretive than we anticipated. Our CAFD/sh is now US$1.80 (unchanged) in 2016, and US$2.04 (vs. $2) in 2017," Pham continued.

The analyst also raised his price target to $25 from $23 on higher CAFD (cash available for distribution) estimates and the decline in bond yields.

At time of writing, shares of Pattern Energy rose 2.26 percent to $23.49.