KeyBanc-Summary-Aug-29-2013.pdf

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August 29, 2013
ENERGY: Electric Utilities / Multi-Utilities
Company Update / Price Target Change
KeyBanc
Capital￿Markets

Utilities: Rate Volatility Impacting Utilities: Price Target Updates
KeyBanc Capital Markets Inc.
Member NYSE/FINRA/SIPC
Paul T. Ridzon: [phone] Ð [e-mail]
ACTION STATEMENT
With interest rates rising over the course of the last month and investors’ reduced appetite for interest rate sensitive securities, we are
revisiting our price targets on some of our BUY-rated names after the recent pullback. As we still find value in these names, we have
decided to reduce our price targets as the multiples have compressed in this more volatile interest rate environment.
Our current price targets on all of our BUY-rated stocks under coverage are outlined below.
KEY INVESTMENT POINTS
American Electric Power Company, Inc. (AEP-NYSE; BUY; $48.00 price target; $3.30 EPS 2014E) - Despite the recent pullback
in the stock, we remain buyers of the name as the Company has new rates in several jurisdictions, a recently increased payout ratio
and continues to grow earnings in a range of 4-6%. On its 2Q13 earnings call, AEP reaffirmed 2013 and 2014 guidance ranges of
$3.05-$3.25 and $3.15-$3.45 per share, respectively. With a 60-70% payout ratio, we believe there is significant upside potential in the
name as many of the risks are already factored in. We believe AEP offers investment opportunity on generally reasonable regulatory
environments and offers upside in a tightening commodity market. We have decreased our price target to $48.00 from $51.50 per
share. Our valuation is based upon a modest discount to large cap regulated peers.
ALLETE, Inc. (ALE-NYSE; BUY; $51.00 price target; $2.90 EPS 2014E) - We believe ALE offers above-average growth prospects
through investment in renewables, environmental, transmission and potentially new generation, all in a constructive regulatory
environment. Although ALE customer Essar Minnesota Taconite notified the Company that production ramp-up would be in late 2014,
we believe the Company may see a slight tailwind in the same time frame from a mining project pursued by PolyMet or 45-70 MW of
load opportunity. Additionally, potential near- to medium-term catalysts include incremental wind capacity and possible monetization
of Florida real estate assets. We have lowered our price target to $51.00 from $55.00 per share. We add back the Florida real
estate losses and apply a premium valuation, and then add back the real estate book value in our valuation.
CMS Energy Corporation (CMS-NYSE; BUY; $28.50 price target; $1.75 EPS 2014E) - In our view, CMS offers solid capital
opportunities in a constructive regulatory environment. CMS has potential investment in renewables and baseload natural gas
generation. NOLs (net operating loss carry forwards) allow investment without meaningful equity needs. We have reduced our price
objective to $28.50 from $30.00 per share. We use a valuation premium of 8% to a peer group of larger regulated names.
Cleco Corporation (CNL-NYSE; BUY; $48.00 price target; $2.75 EPS 2014E) - CNL has successfully completed its large capital
program and represents a free cash flow story. We estimate CNL can generate roughly $90 million of free cash annually. Management
has indicated it would utilize this free cash to seek investment opportunities with utility-like risk and returns and/or return cash to
shareholders through higher dividend payments or share repurchases. Our new $48.00 price target (prior $49.00) is derived from
the value of a premium utility, including earnings from rate-basing the Coughlin plant and adding the cash generated by levering the
plant to the utility's capital structure.
IDACORP, Inc. (IDA-NYSE; BUY; $51.50 price target; $3.40 EPS 2014E) - IDA has investment opportunities around large
transmission projects and potential generation to fill the needs caused by expiring power contracts. We believe the Company will
continue to benefit in 2013 from continued hot and dry weather trends that drove 2Q13 earnings. Idaho regulation continues to improve
as evidenced by recent constructive settlements that act to put a 9.5% floor on IDA's earned ROE. We have reduced our price target
to $51.50 from $55.00 per share based upon our view that shares should trade at a 5% discount to the group given lingering risk
that improvement in Idaho regulation stalls.
FOR IMPORTANT DISCLOSURES AND CERTIFICATIONS, PLEASE REFER TO PAGE 4 OF THIS NOTE.
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NextEra Energy, Inc. (NEE-NYSE; BUY; $84.50 price target; $5.30 EPS 2014E) - We expect rider recovery of growth projects at
the Florida utility will more than offset a potential decline in earnings at NextEra Energy Resources (NEER, the unregulated generation
segment). On the 2Q13 call, management announced a meaningful pipeline joint venture to bring gas to Florida, approximately $1.55
billion from NEE. We remain buyers in the name as Florida©s economy continues to recover and management endorsed the top half of
2013 earnings guidance ($4.70-$5.00 per share). We have lowered our price objective to $84.50 from $88.00 per share.
NiSource, Inc. (NI-NYSE; BUY; $31.00 price target; $1.65 EPS 2014E) - We view NI as a portfolio of attractive assets in the
gas distribution, electric utility and gas midstream businesses, coupled with a meaningful (100,000-200,000 acres) position in the
Utica/Marcellus. Our valuation is based on a sum-of-the-parts of companies in respective peer groups. We have lowered our price
objective to $31.00 from $32.00 per share to reflect the compressed multiples in the group.
Valuation Table for Price Target Changes
Pricing: August 28, 2013 Closing Price
Company Ticker Rating
2014E
EPS 2014 P/E
Price Tgt
P/E
Price
Target
American Electric Power Company,Inc.AEP Buy $3.30 13.1x 14.5x $48.00
Allete Inc.ALE Buy $2.90 16.5x 17.6x $51.00
CMS Energy,Inc.CMS Buy $1.75 15.2x 16.3x $28.50
Cleco Corp.CNL Buy $2.75 16.7x 17.5x $48.00
IDACORP IDA Buy $3.40 14.2x 15.1x $51.50
NextEra Energy,Inc.NEE Buy $5.30 15.3x 15.9x $84.50
NiSource,Inc.NI Buy $1.65 17.8x 18.8x $31.00
KBCM Utility Peer Group Average Multiple =14.8x
Source:KeyBanc Capital Markets Estimates
Company NoteAugust 29, 2013
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Cur Prv Cur Prv FC FC Current EPS Previous EPS
Sym Rtg Rtg Target Target 2013 2014 2013 2014 2015 2013 2014 2015
AEP BUY BUY $48.00 $51.50 $3.14 $3.31 $3.10 $3.30 --$3.10 $3.30 --
ALE BUY BUY $51.00 $55.00 $2.71 $2.92 $2.75 $2.90 --$2.75 $2.90 --
CMS BUY BUY $28.50 $30.00 $1.65 $1.75 $1.65 $1.75 --$1.65 $1.75 --
CNL BUY BUY $48.00 $49.00 $2.51 $2.75 $2.55 $2.75 --$2.55 $2.75 --
IDA BUY BUY $51.50 $55.00 $3.50 $3.41 $3.50 $3.40 --$3.50 $3.40 --
NEE BUY BUY $84.50 $88.00 $4.95 $5.29 $4.95 $5.30 --$4.95 $5.30 --
NI BUY BUY $31.00 $32.00 $1.55 $1.68 $1.55 $1.65 --$1.55 $1.65 --
Company NoteAugust 29, 2013
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KeyBanc Capital Markets Inc. Disclosures and Certifications
Important disclosures for the companies mentioned in this report can be found at https://key2.bluematrix.com/sellside/
Disclosures.action.
Please refer to the analysts© recently published reports for company-specific valuation and risks.
Reg A/C Certification
The research analyst(s) responsible for the preparation of this research report certifies that:(1) all the views expressed in
this research report accurately reflect the research analyst©s personal views about any and all of the subject securities or
issuers; and (2) no part of the research analyst©s compensation was, is, or will be directly or indirectly related to the specific
recommendations or views expressed by the research analyst(s) in this research report.
Rating Disclosures
Distribution of Ratings/IB Services Firmwide and by Sector
KeyBanc Capital Markets
IB Serv/Past 12 Mos.
Rating Count Percent Count Percent
BUY [BUY]224 43.33 49 21.88
HOLD [HOLD]280 54.16 64 22.86
SELL [UND]13 2.51 4 30.77

ENERGY
IB Serv/Past 12 Mos.
Rating Count Percent Count Percent
BUY [BUY]31 44.93 19 61.29
HOLD [HOLD]38 55.07 16 42.11
SELL [UND]0 0.00 0 0.00

Rating System
BUY - The security is expected to outperform the market over the next six to 12 months; investors should consider adding the
security to their holdings opportunistically, subject to their overall diversification requirements.
HOLD - The security is expected to perform in line with general market indices over the next six to 12 months; no buy or sell
action is recommended at this time.
UNDERWEIGHT - The security is expected to underperform the market over the next six to 12 months; investors should
reduce their holdings opportunistically.
The information contained in this report is based on sources considered to be reliable but is not represented to be
complete and its accuracy is not guaranteed. The opinions expressed reflect the judgment of the author as of the
date of publication and are subject to change without notice. This report does not constitute an offer to sell or a
solicitation of an offer to buy any securities. Our company policy prohibits research analysts and members of their
families from owning securities of any company followed by that analyst, unless otherwise disclosed. Our officers,
directors, shareholders and other employees, and members of their families may have positions in these securities and
may, as principal or agent, buy and sell such securities before, after or concurrently with the publication of this report.
In some instances, such investments may be inconsistent with the opinions expressed herein. One or more of our
employees, other than the research analyst responsible for the preparation of this report, may be a member of the Board
of Directors of any company referred to in this report. The research analyst responsible for the preparation of this report is
compensated based on various factors, including the analyst©s productivity, the quality of the analyst©s research and stock
recommendations, ratings from investor clients, competitive factors and overall Firm revenues, which include revenues
derived from, among other business activities, the Firm©s performance of investment banking services. In accordance with
industry practices, our analysts are prohibited from soliciting investment banking business for our Firm.
Investors should assume that we are seeking or will seek investment banking or other business relationships with the
company described in this report.
Company NoteAugust 29, 2013