Goldman Sachs' 3 Top Utilities Stocks In 2018

Last year’s tax reform inspired a spate of analyst upgrades across industries.

The latest beneficiary? Utilities.

The Rating

Goldman Sachs analyst Michael Lapides upgraded OGE Energy Corp. (NYSE: OGE) and NiSources Inc. (NYSE: NI) from Neutral to Buy and increased their respective price targets from $35 to $38 and from $27 to $29. He also initiated coverage on Avangrid Inc (NYSE: AGR) with a Buy with a $60 price target.

The Thesis

The positive initiation on Avangrid is anchored in the firm’s expanded investment in unregulated wind and solar assets, coupled with expected 9-percent compound annual earnings per share growth, 8-percent annual dividend growth and 15-percent revenue growth through 2020, Lapides said. (See the analyst's track record here.) 

“We expect AGR’s regulated electric and gas utilities to benefit from (1) forward test years in NY and CT and rate cases not needed in ME, (2) opportunities for rate base growth via investment in transmission, gas, infrastructure replacement, etc., with capital spending consisting of growth projects and projects eligible for trackers — offering limited regulatory lag, and (3) decoupling — and therefore no sensitivity to changes in demand growth or shrinkage," the analyst said. 

Goldman expects OGE to benefit from tax reform and views it attractively following recent underperformance. NiSources is seen to be undervalued for its top EPS and above-average dividend per share growth.

Price Action

At the time of publication, Avangrid was up 2.04 percent at $48.97, OGE 1.65 percent at $31.40 and NiSource down slightly at $24.13. 

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