On Tuesday, Evercore ISI adjusted its price target for Xcel Energy (NASDAQ:XEL) shares, reducing it from $68.00 to $54.00, while maintaining an Outperform rating on the stock.
The reassessment comes in the wake of Texas wildland fires that began affecting the service territory of Xcel's subsidiary Southwestern Public Service Company (SPS) last Monday. Xcel Energy has been collaborating with emergency responders to address the situation.
On February 28, 2024, Xcel Energy received a letter from a law firm representing property insurance interests, alleging that their clients suffered damages due to the Smokehouse Creek Fire and requesting the preservation of a fallen SPS utility pole.
This notice suggests potential financial exposure for Xcel Energy. The analyst from Evercore ISI highlighted the ongoing uncertainty regarding whether Xcel's equipment was responsible for the fire.
Five active wildfires are currently raging in the Texas Panhandle, with the Smokehouse Creek Fire being the largest. It has consumed close to 1.1 million acres and was only 15% contained as of Sunday afternoon. The revised price target of $54.00 reflects a weighted average of three scenarios based on potential wildfire liabilities.
The $58.00 bull case scenario assumes no liability for Xcel Energy, envisioning the stock to trade at a 5% premium multiple. Conversely, the $44.00 bear case scenario takes into account a possible $5 billion liability with a 10% discount multiple.
The stock has experienced a 12% decline since the company's 8K filing on February 29, 2024. The analyst has indicated that the rating and price target will be reassessed once the fire is fully contained and a clearer picture of the total damages emerges.
The report also warns of potential near-term volatility for Xcel Energy's stock as the market adjusts its view on the possible financial impact of the wildfires.
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