By Davit Kirakosyan
Here is your Pro Recap of the biggest analyst cuts you may have missed since yesterday: a Sell initiation at RTX, and downgrades at NextEra Energy Partners, Terex, and South State.
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NextEra Energy Partners receives two downgrades after revising growth expectations
Nextera Energy Partners (NYSE:NEP) received two downgrades after the company revised its growth expectations and limited equity needs. As a result, shares dropped more than 20% yesterday.
JPMorgan downgraded the company to Neutral from Overweight and cut its price target to $40.00 from $69.00. According to the firm, the reason for the rating change is that the company has substantially lowered its expected distribution per unit (DPU) growth. This reduction is attributed to the inability to accretively add drop-downs from its parent company Nextera Energy (NYSE:NEE), due to a higher cost of capital.
Although we believe the lowered DPU growth of 5-8%, from 12-15% previously, is achievable over the near-term owing to existing PPA escalators, largely fixed-cost existing debt, and organic repowering opportunities, we do not expect the company's cost of capital for new acquisitions to meaningfully improve in the near-term.
Meanwhile, Oppenheimer downgraded the company to Perform from Outperform. The firm explained that NextEra revised its dividend growth projections until 2026 and adjusted its run-rate expectations for year-end 2023. It has also stated that it won't require new growth equity until 2027.
With higher PPA rates for renewables, a favorable policy backdrop, and visibility to 58GW of sponsor opportunities through 2026, we continue to see large future growth opportunities for the platform, but believe NEP needs to execute on accretive growth, key divestitures and 2024/25 debt refinancing.
RTX started with a Sell rating at Deutsche Bank
Deutsche Bank initiated coverage on RTX (NYSE:RTX) with a Sell rating and a price target of $70.00, as reported in real-time on InvestingPro.
The bank’s assessment is that while RTX boasts three major franchises in the Aerospace and Defense sector, the company has struggled to achieve operational results that match the potential of these franchises.
“Between the latest revelations at P&W and the additional risks we still see on the horizon, it’s not clear to us that an inflection point is imminent,” mentioned the bank.
Two more downgrades
Terex (NYSE:TEX) shares fell more than 1% pre-market today after KeyBanc downgraded the company to Sector Weight from Overweight.
The firm believes Terex's current strong financial performance, backed by visible project funding and a substantial backlog, is already well-known and factored into the stock's value. “In fact, it is those well-known and presumably well-discounted dynamics that make us more cautious. We think order rates could moderate from recently elevated levels at the same time supply chain improvements allow for revenue increases and faster backlog monetization,” mentioned the firm.
Truist Securities downgraded South State (NASDAQ:SSB) to Hold from Buy with a price target of $73.00.
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