On Monday, Wolfe Research announced an upgrade for Xcel Energy (NASDAQ:XEL) from Peer Perform to Outperform on the stock, setting a price target of $58.00. The firm highlighted Xcel Energy's potential to achieve earnings per share (EPS) growth near the upper end of its long-term 5-7% annual target through 2027. This optimism is partly due to the company's successful investments in renewable energy and generation projects across Colorado, New Mexico/Texas, and the Upper Midwest.
Xcel Energy's Steel for Fuel initiative has positioned it as a leader in incorporating renewables into its rate base. The company's consistent performance, having met or exceeded the midpoint of its original guidance range for 15 consecutive years, is noted as one of the best in the sector.
Wolfe Research's price target is based on a modest premium of approximately 3% above the utility group average, justified by Xcel Energy's robust growth plan, identifiable earnings opportunities, and strong balance sheet, which includes a high-BBB credit rating and a 17% funds from operations (FFO) to debt ratio.
Despite recent challenges, including a stock decline after disclosing potential liabilities from the Texas Smokehouse Creek Fire and ongoing litigation related to the Colorado Marshall Fire, with a trial set for September 2025, Wolfe Research believes the risks are overstated. The firm expects that any damages from the Texas fire will likely fall under Xcel's $500 million insurance coverage for 2024. Furthermore, Xcel Energy has contested allegations that its power lines caused a secondary ignition in the Colorado fire.
In conclusion, Wolfe Research anticipates Xcel Energy to implement enhanced wildfire prevention and mitigation measures, which should support the company's performance despite the potential for future fire-related risks. These measures are expected to maintain Xcel's stock multiple slightly below its historical premium.
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