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Xcel Energy’s Challenges, Guidance, and Depressing Price Targets

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Apr. 1 2016, Published 2:28 p.m. ET

Xcel Energy: Summing it up

Xcel Energy (XEL) expects its earnings to grow 4%–6% in the next five years. In 2015, Xcel posted an earnings growth of ~3% year-over-year. Xcel’s management is attempting to address the right issue by trying to minimize regulatory lag. It may further boost its earnings by increasing capital spending as it did last year.

Xcel Energy has filed a resource plan for its generation facilities with Minnesota regulators. This aims to reduce carbon emissions by 60% by 2030. It will be a very capital-intensive task for Xcel Energy to switch from coal as a fuel source. Nearly 50% of the power that Xcel Energy generates comes from coal.

Xcel Energy paid dividends of $1.28 per share in 2015. This was nearly a 6.7% rise in dividends compared to 2014 dividends. Xcel expects a strong increase of 5%–7% in annual dividend distributions with a target payout ratio of 60%–70%.

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Price targets

The above graph shows the comparative stock price movement of mid-cap utilities with utilities ETFs (XLU). As we saw in the previous part, utilities (IDU) outperformed broader equity markets this year. Let’s have a look now at whether there’s any upside left in these utilities, according to analysts’ estimates.

According to Wall Street analysts, Xcel Energy has an expected downside of nearly 6% in the next one year. It has a price target of $39.43 against its current market price of $41.82 as of March 31, 2016.

Of the 18 analysts tracking Xcel Energy, 13 recommend it as a “hold,” and three recommend it as a “buy.” Two analysts recommend it as a “sell” as of April 1, 2016.

For its peers, analysts have given DTE Energy (DTE) a one-year price target of $90.70. That implies an estimated upside of a mere 1.4% considering its current market price of $89.50. New York’s regulated player Consolidated Edison (ED) has an estimated downside of ~13% with its current price of $76.62. It has a price target of $66.85.

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