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Home My WebLink About2011 Wells-Fargo-Energy Squawk-Aug-29-2011.pdf Please see page 4 for rating definitions, important disclosures and required analyst certifications Wells Fargo Securities, LLC does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of the report and investors should consider this report as only a single factor in making their investment decision. u ust 29, 2011 Equity Research Equity Squawks 8:30 A.M. Edition INSIDE THIS ISSUE Page Headline Analyst 2 NWE, IDA, AEP: Energy And Utility Daily--Week Ahead Preview Kalton 2 Hurricane Irene Hall 3 LAMR: Lamar Advertising Company: Lamr: Impact From Hurricane Irene Should Be Minimal Ryvicker Equity Squawk Newsletter Equity Squawks Equity Research Department WELLS FARGO SECURITIES, LLC Equity Squawk Newsletter EQUITY RESEARCH DEPARTMENT 2 Energy And Utility Daily--Week Ahead Preview Analyst: Neil Kalton, CFA (ENERGY TEAM, NA) (NWE, $32.76, OUTPERFORM) (IDA, $36.76, OUTPERFORM) (AEP, $37.56, OUTPERFORM) Quick thoughts from Wells Fargo Securities, LLC Energy & Utility Team: Electric Utilities NorthWestern Corp. (NWE/Outperform) (Kalton) - This week we will host NWE senior management on the road for investor meetings in the Midwest. Hot topics are likely to include Montana regulatory approval outlook for the Spion Kop wind project, accelerated distribution system infrastructure plan (DSIP) and natural gas reserve acquisitions as well as the most recent updates on NWE's FERC transmission investment opportunities such as MSTI, the wind collector system and MISO MVP projects. IDACORP (IDA/Outperform) (Kalton) - The first settlement conference in Idaho Power's pending rate case is scheduled for this Wednesday, 8/31, according to the Staff's 7/28 memo. We believe that a settlement remains a viable outcome as (1) IDA appears motivated to reach an agreement, and (2) there could be an opportunity to mitigate the rate impact to customers by utilizing the accumulated deferred investment tax credit (ADITC) balance (as allowed under the '09-11 rate plan, but not needed in '09 and '10), which would likely be politically appealing; congressional approval of the UCAP tax benefit would help on this front, but we do not believe it is necessary. While the amortization of ADITCs results in non-cash earnings, IDA's cash position has been bolstered by various tax benefits and Idaho Power could still file for cash recovery of the Langley Gulch investment (pre-approved; in-service mid-12). Our 2012E and 2013E EPS of $3.05 and $3.10 are based on traditional rate parameters and result in earned ROEs of roughly 9.5% in Idaho. A 50 bp change to the earned ROE has a $0.13-0.15 EPS impact. We continue to rate shares Outperform and highlight that the stock trades at discounts of 12%/7% to Regulated peers on 2012E and 2013E EPS following the recent underperformance. Since the recent market peak on 7/22, IDA shares are down 8.1% (total return) versus a 2.3% decline for the S&P Utilities. We attribute the weakness to the company's below-average dividend yield of 3.3% (peer group median of 4.4%) and, to a lesser degree, rate case risk. While we understand the relative performance given the yield-hungry environment, we believe it presents an opportunity for investors. American Electric Power (AEP/Outperform) (Kalton) - Hearings in AEP's ESP case are now set to begin on Wednesday (absent a settlement or another extension). Hurricane Irene Analyst: John Hall (PROPERTY & CASUALTY INSURANCE, MARKET WEIGHT) Hurricane Irene moved up the East Coast this weekend, making landfall in NC, VA, NJ and NY among other places, weakening as it progressed north. While the storm was destructive (Exhibit A: the tree on top of my house), its impact was less than anticipated and certainly less than what could have been given the storm's population-dense track. WELLS FARGO SECURITIES, LLC Equity Squawks EQUITY RESEARCH DEPARTMENT 3 Leading up to Irene's landfall, the range of informed insured loss estimates ran from $3 to $11 billion. To us, it appears losses for Irene will likely fall at the low end of that range, perhaps between $3 to $5 billion. Much of the property damage associated with Irene will probably be flood-related, a peril generally not covered by standard homeowners policies. To wit, media coverage focused on floods and rising water as opposed to wholesale destruction of homes and communities. We expect ALL, CB and TRV will bear the heaviest load of Irene's losses among the companies in our universe. Reinsurance layers may be breached for some accounts but not by much, in our view. Our pre-storm view holds: we do not believe losses from Hurricane Irene will be sufficient to trigger a broader strengthening of non-life insurance rates. Still, we recognize the cumulative nature of such losses and the fact that there is another four weeks of ''prime'' hurricane season remaining. LAMR: Impact From Hurricane Irene Should Be Minimal Lamar Advertising Company Analyst: Marci Ryvicker, CFA, CPA (OUTDOOR, OVERWEIGHT) (LAMR, $20.15, MARKET PERFORM / V) (CCO, $11.24, OUTPERFORM / V) IMPACT FROM HURRICANE IRENE SHOULD BE MINIMAL. In response to questions regarding LAMR's exposure to Hurricane Irene, we were in touch with management late Friday and have the following data points to support the fact that overall damage should be minimal. 1) LAMR's billboards are spread out all over the country - we believe that no market is greater than 3% of revenue. 2) We believe that LAMR's exposure to the eastern most edge of the U.S. is well below that of other regions. 3) It is standard operating procedure for LAMR's crew to take the faces out of their most valuable inventory so that the wind will blow right through the structures; faces are reinstalled after the storm has passed. 4) LAMR was hit with 4 major hurricanes in FL in 2004 and total damage was ~$2MM - we believe that LAMR had far more exposure to FL hurricanes than it has to Irene. THAT SAID, LAMR IS NOT UNSCATHED AS ''WEATHER'' DOES TEND CAUSE SOME DISRUPTION. While physical damage should be minimal, we do not suggest that LAMR is completely unscathed from Hurricane Irene. In general, adverse weather conditions make it difficult for most companies to conduct ''business as usual'' as customers are not available to make and close transactions. We saw this among all of our ad-exposed companies with the winter storms earlier this year. To remind you, such winter storms took about 50bps off LAMR's top line in H1. CCO MAY HAVE MORE EXPOSURE, BUT UNABLE TO QUANTIFY AT THIS TIME. Given its exposure to the U.S. major markets, CCO was likely impacted more by Irene than LAMR, in our view. That said, we believe CCO has similar operating procedures (i.e. taking down the faces during inclement weather) to mitigate the potential damage. We intend to provide an update on CCO's business once the storm has fully passed, and management has a better idea as to the potential impact. WELLS FARGO SECURITIES, LLC Equity Squawk Newsletter EQUITY RESEARCH DEPARTMENT 4 Required Disclosures To view price charts for all companies rated in this document, please go to www.wellsfargo.com\research or write to 7 Saint Paul Street, 1st Floor, R1230-012, Baltimore, MD 21202 ATTN: Research Publications NWE - Rating and Target Price Changes/Disclosures Update Date Publication Price Rating Valuation Range Closing Price 4/28/09 20.79 OUTPERFORM $23- $25 20.92 7/2/09 23.40 OUTPERFORM $24-$26 22.79 8/4/09 24.26 OUTPERFORM $25-$26 24.50 9/18/09 24.45 OUTPERFORM $27-$28 24.33 12/14/09 26.31 OUTPERFORM $29-$30 26.55 4/23/10 29.25 OUTPERFORM $30-$31 29.47 5/3/10 30.22 MARKET PERFORM $30-$31 30.26 6/17/10 26.91 OUTPERFORM $30- $31 27.47 10/29/10 29.51 MARKET PERFORM $30-$31 29.77 4/26/11 30.86 OUTPERFORM $35- $36 31.48 IDA - Rating and Target Price Changes/Disclosures Update Date Publication Price Rating Valuation Range Closing Price 8/27/08 NA MARKET PERFORM $31-$33 30.02 12/18/08 29.19 MARKET PERFORM $30- $32 29.24 2/19/09 24.39 MARKET PERFORM $26-$27 24.39 8/6/09 27.79 MARKET PERFORM $27-$29 27.79 9/10/09 28.37 MARKET PERFORM $29-$30 28.37 11/10/09 29.52 MARKET PERFORM $30-$31 29.52 12/14/09 31.18 MARKET PERFORM $32-$33 31.54 2/25/10 33.94 MARKET PERFORM $35-$36 33.89 8/6/10 35.75 MARKET PERFORM $36-$37 36.05 10/29/10 37.00 MARKET PERFORM $38- $39 36.80 11/15/10 36.34 OUTPERFORM $40-$41 36.52 2/9/11 38.22 OUTPERFORM $41-$42 38.05 5/5/11 38.91 OUTPERFORM $42-$43 38.91 7/19/11 39.83 OUTPERFORM $43-$44 39.84 8/4/11 36.47 OUTPERFORM $41-$42 36.47 AEP - Rating and Target Price Changes/Disclosures Update Date Publication Price Rating Valuation Range Closing Price 8/27/08 NA Not Rated NE 35.84 7/26/10 35.80 OUTPERFORM $40-$41 36.17 10/19/10 36.59 OUTPERFORM $41-$42 36.52 LAMR - Rating and Target Price Changes/Disclosures Update Date Publication Price Rating Valuation Range Closing Price 8/27/08 NA MARKET PERFORM $33-$35 37.07 9/18/08 34.85 MARKET PERFORM $32-$34 35.87 10/23/08 16.05 MARKET PERFORM $22-$25 15.03 11/7/08 14.63 MARKET PERFORM $14-$16 15.53 2/26/09 6.39 MARKET PERFORM $6-$8 6.39 4/21/09 14.60 MARKET PERFORM $12-$15 16.01 5/8/09 22.12 MARKET PERFORM $20-$23 22.38 10/28/09 27.36 MARKET PERFORM $27-$30 25.18 11/6/09 28.80 MARKET PERFORM $30-$32 29.07 2/9/10 27.20 OUTPERFORM $40-$42 28.20 7/21/10 26.36 OUTPERFORM $34-$36 26.34 8/6/10 30.98 OUTPERFORM $35- $37 31.31 10/22/10 33.82 OUTPERFORM $37-$39 34.31 11/17/10 35.56 OUTPERFORM $40- $42 35.57 12/6/10 39.19 OUTPERFORM $45- CCO - Rating and Target Price Changes/Disclosures Update Date Publication Price Rating Valuation Range Closing Price 8/27/08 NA Suspended $25-$27 16.68 9/15/09 6.90 MARKET PERFORM $7-$8 6.90 12/16/09 9.49 MARKET PERFORM $9-$10 9.52 3/12/10 10.58 MARKET PERFORM $9-$11 11.85 5/4/10 11.81 OUTPERFORM $13-$15 12.03 5/11/10 10.73 OUTPERFORM $14-$16 10.88 7/21/10 10.00 OUTPERFORM $12-$13 10.01 8/10/10 11.87 OUTPERFORM $14-$15 11.43 12/6/10 13.87 OUTPERFORM $16-$17 13.90 2/8/11 14.82 OUTPERFORM $17-$18 14.70 7/14/11 12.73 OUTPERFORM $16-$17 12.67 WELLS FARGO SECURITIES, LLC Equity Squawks EQUITY RESEARCH DEPARTMENT 5 $47 39.54 4/19/11 31.46 OUTPERFORM $42-$45 32.17 5/5/11 28.75 OUTPERFORM $36- $38 29.59 7/14/11 26.55 OUTPERFORM $34- $36 26.00 8/4/11 24.90 MARKET PERFORM $25-$28 22.11 Additional Information Available Upon Request I certify that: 1) All views expressed in this research report accurately reflect my personal views about any and all of the subject securities or issuers discussed; and 2) No part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by me in this research report. Wells Fargo Securities, LLC does not compensate its research analysts based on specific investment banking transactions. Wells Fargo Securities, LLC’s research analysts receive compensation that is based upon and impacted by the overall profitability and revenue of the firm, which includes, but is not limited to investment banking revenue. STOCK RATING 1=Outperform: The stock appears attractively valued, and we believe the stock's total return will exceed that of the market over the next 12 months. BUY 2=Market Perform: The stock appears appropriately valued, and we believe the stock's total return will be in line with the market over the next 12 months. HOLD 3=Underperform: The stock appears overvalued, and we believe the stock's total return will be below the market over the next 12 months. SELL SECTOR RATING O=Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months. M=Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months. U=Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months. Wells Fargo Securities, LLC maintains a market in the common stock of American Electric Power Company, Inc., Clear Channel Outdoor Holdings, Inc., IDACORP, Inc., Lamar Advertising Company, NorthWestern Corporation. Wells Fargo Securities, LLC or its affiliates managed or comanaged a public offering of securities for IDACORP, Inc. within the past 12 months. Wells Fargo Securities, LLC or its affiliates intends to seek or expects to receive compensation for investment banking services in the next three months from American Electric Power Company, Inc., IDACORP, Inc. Wells Fargo Securities, LLC or its affiliates received compensation for investment banking services from American Electric Power Company, Inc., Clear Channel Outdoor Holdings, Inc., IDACORP, Inc. in the past 12 months. Wells Fargo Securities, LLC and/or its affiliates, have beneficial ownership of 1% or more of any class of the common stock of Clear Channel Outdoor Holdings, Inc., NorthWestern Corporation. American Electric Power Company, Inc., Clear Channel Outdoor Holdings, Inc., IDACORP, Inc. currently is, or during the 12-month period preceding the date of distribution of the research report was, a client of Wells Fargo Securities, LLC. Wells Fargo Securities, LLC provided investment banking services to American Electric Power Company, Inc., Clear Channel Outdoor Holdings, Inc., IDACORP, Inc. Clear Channel Outdoor Holdings, Inc., IDACORP, Inc. currently is, or during the 12-month period preceding the date of distribution of the research report was, a client of Wells Fargo Securities, LLC. Wells Fargo Securities, LLC provided noninvestment banking securities-related services to Clear Channel Outdoor Holdings, Inc., IDACORP, Inc. American Electric Power Company, Inc. currently is, or during the 12-month period preceding the date of distribution of the research report was, a client of Wells Fargo Securities, LLC. Wells Fargo Securities, LLC provided nonsecurities services to American Electric Power Company, Inc. Wells Fargo Securities, LLC received compensation for products or services other than investment banking services from Clear Channel Outdoor Holdings, Inc., IDACORP, Inc. in the past 12 months. Wells Fargo Securities, LLC or its affiliates may have a significant financial interest in American Electric Power Company, Inc., Clear Channel Outdoor Holdings, Inc., IDACORP, Inc., Lamar Advertising Company, NorthWestern Corporation. WELLS FARGO SECURITIES, LLC Equity Squawk Newsletter EQUITY RESEARCH DEPARTMENT 6 VOLATILITY RATING V = A stock is defined as volatile if the stock price has fluctuated by +/-20% or greater in at least 8 of the past 24 months or if the analyst expects significant volatility. All IPO stocks are automatically rated volatile within the first 24 months of trading. As of: August 29, 2011 48% of companies covered by Wells Fargo Securities, LLC Equity Research are rated Outperform. Wells Fargo Securities, LLC has provided investment banking services for 46% of its Equity Research Outperform-rated companies. 49% of companies covered by Wells Fargo Securities, LLC Equity Research are rated Market Perform. Wells Fargo Securities, LLC has provided investment banking services for 49% of its Equity Research Market Perform-rated companies. 3% of companies covered by Wells Fargo Securities, LLC Equity Research are rated Underperform. Wells Fargo Securities, LLC has provided investment banking services for 44% of its Equity Research Underperform-rated companies. Important Information for Non-U.S. Recipients EEA – The securities and related financial instruments described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. For recipients in the EEA, this report is distributed by Wells Fargo Securities International Limited (“WFSIL”). WFSIL is a U.K. incorporated investment firm authorized and regulated by the Financial Services Authority. For the purposes of Section 21 of the UK Financial Services and Markets Act 2000 (“the Act”), the content of this report has been approved by WFSIL a regulated person under the Act. 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