Many investors flocked into the utility sector during and after the Great Recession. After all, this was a safety and defensive investing strategy, first and foremost. But the sector also offered investors high dividend yields at a time when interest rates were next to zero. But now that interest rates have risen handily, those interest rates have started to tick lower on the long-end of the yield curve. Some investors might be thinking that the safety and income from utilities already has seen its upside.

Merrill Lynch does not feel that way at all. During the week of March 29, 2019, the firm increased its price objectives on many top utility stocks in its coverage universe, and it has Buy ratings on many of these names. While not all the utility shares come with Buy ratings, even some of the more cautious names saw their price objectives raised substantially.

Here 24/7 Wall St. offers a brief review of each company, along with the respective hikes in the price objective and the 52-week trading ranges and Refinitiv consensus analyst target prices.

The electric utilities team at Merrill Lynch is made up of seven named analysts making the reports. With several utility companies embarking on substantial renewable build-outs across the firm’s coverage universe, the firm examined the nuances of tax credits and the major players that utilize various recognition methods. The firm does note that it continues to see tax credit valuation as an evolving debate and only a portion of utility investors have adequately delved into the subject.

While the views are hard to see universally at each and every utility, Merrill Lynch looked into the recognition of investment tax credits (ITCs) for solar and offshore wind to allow for more flexibility for these companies to elect to recognize ITCs in earnings over a shorter or longer duration. The added flexibility could be viewed as advantageous, but the firm also thinks it should be examined more diligently by investors.

The Merrill Lynch report also looked at how investors should value the tax equity contribution in overall utility earnings rather than based on traditional P/E (price-to-earnings) ratio analysis. The report said:

While many investors traditionally view utility earnings on a P/E basis, applying the same methodology to tax credits can be misleading given the lack of transparency and eventual sun-setting of incentives for renewables. With tax credits frequently taken on a very short duration basis, all of the earnings power of assets is effectively accelerated into the initial years of the structure. Thus, we caution from putting a multiple on these earnings as they are effectively interest expense tied to the tax equity, and instead encourage a DCF approach. We believe reconciling the full extent of earnings power through this method rather than applying a P/E multiple to earnings that remain generally opaque is more appropriate… We see proper value less than half (~45%) of that that would be applied on a straight P/E basis. As renewable development continues to proliferate, we believe these considerations will become increasingly important when assigning value to tax credits in earnings that are generally less in quality.

Ameren Corp. (NYSE: AEE) is a public utility holding company operating in electricity and natural gas throughout Middle America. Merrill Lynch raised its price objective to $77 from $70 (versus a $73.46 prior close). Ameren has a 2.5% dividend yield, a 52-week range of $55.01 to $74.91, and a consensus price target of $70.78.

American Electric Power Co. Inc. (NYSE: AEP) is a top utility with millions of customers in middle America as well. The firm raised its price objective to $94 from $90 (versus an $83.79 close). AEP has a 3.1% dividend yield, and the company historically has been one of the most vocal dividend supporters of all utilities. Merrill Lynch has a Buy rating and noted that AEP acquired new wind through Sempra and is likely in the early stages given roughly $1 billion remaining in its renewable capex guidance. The 52-week range is $62.71 to $86.10, and the consensus price target is $82.75.

American Water Works Co. Inc. (NYSE: AWK), America’s leading water utility, saw its price objective raised to $114 from $103 (versus a $104.32 close). Merrill Lynch has a Neutral rating despite that big upside. Its dividend yield is 1.7%. The 52-week range is $77.73 to $107.71, and the consensus price target is $103.46.

Avangrid Inc. (NYSE: AGR) operates a natural gas and renewable energy utility company in the northeastern part of the United States. Merrill Lynch has a Neutral rating but raised its price objective to $54 from $52 (versus a $50.01 close) in a sum-of-the-parts valuation, compared with the most recent closing price of $50.01. The stock has a dividend yield of 3.5%. The 52-week range is $45.81 to $54.55, and the consensus price target is $50.38.

Black Hills Corp. (NYSE: BKH) is an electric and natural gas utility company with customers in Colorado, Montana, South Dakota and Wyoming. Its price objective was raised to $75 from $71, along with a Neutral rating, and it comes with a 2.7% dividend yield. The 52-week range is $52.63 to $74.77. The consensus price target is $68.67.

CenterPoint Energy Inc. (NYSE: CNP), the Houston-based electric utility and natural gas player, saw its price objective raised to $32 from $31. it also comes with a 3.7% yield. CenterPoint has a 52-week range of $24.81 to $31.42 and a consensus analyst target of $31.29.

Consolidated Edison Inc. (NYSE: ED), the New York-based gas and electric utility, saw its target raised to $94 from $87 (versus an $84.27 close). Con-Ed has a 3.5% yield, and Merrill Lynch indicated it recently acquired a solar portfolio and has stated it will elect to recognize ITCs over a 30-year time frame.

Dominion Energy Inc. (NYSE: D) is a leading utility based on the East Coast that not only produces energy but transports it as well. The price objective was raised to $80 from $76 (versus a $75.67 close). The rating is actually Underperform, according to the report synopsis. Dominion had about $0.30 per share of ITCs in earnings in 2017 and then about $0.10 per share in 2018, and Merrill Lynch noted that it recently announced a roughly $1.3 billion solar build-out program with which it intends on recognizing ITCs immediately and that it should bring about $0.10 to $0.15 per share annually. The dividend yield is 4.5%, the 52-week range is $61.53 to $77.22 and the consensus price target is $75.50.

DTE Energy Co. (NYSE: DTE) generates and distributes to roughly 2.2 million residential, commercial and industrial customers across southeastern Michigan. Merrill Lynch has an Underperform rating but raised its price objective to $120 from $110. The prior closing price was $123.78. DTE has a dividend yield of 3.0% a 52-week range of $94.25 to $126.07, and a consensus price target of $120.35.

Duke Energy Corp. (NYSE: DUK) is the second largest utility company operating in the United States. Its price objective was raised to $98 from $91 (versus an $89.38 close) and it has only a Neutral rating. The dividend yield is 4.1%. Duke has a 52-week range of $71.96 to $91.67, and a consensus price target of $90.22. The company recently announced close to a $2.5 billion renewable program that excludes tax equity from its figures with expectations for about $0.30 per share over the next five years. While the goal was to spread out the ITC recognition over a two-year to seven-year period, Merrill Lynch believes that it will largely be done on a shorter duration of about two years and merits close attention.

Edison International (NYSE: EIX) services much of southern California’s utility needs via hydroelectric, gas, nuclear and photovoltaic sources. Merrill Lynch raised the price objective to $73, from $65. The dividend yield is 3.8%. The 52-week range is $45.50 to $71.00, and the consensus price target is $68.07.

El Paso Electric Co. (NYSE: EE) is a public utility company that operates in West Texas and southern New Mexico. Merrill Lynch raised its price objective to $59 from $56 (versus a $58.34 close). El Paso Electric has a dividend yield of 2.5%. The 52-week range is $47.99 to $64.35, and the consensus price target is $53.00.

Entergy Corp. (NYSE: ETR) operates a utility throughout the southern United States, generating electricity through gas/oil, nuclear, coal, hydro and solar power sources. The price objective was raised to $109, which compares with the most recent closing price of $95.06. The stock has a dividend yield of 3.8%. The 52-week range is $75.45 to $96.87. The consensus price target is $96.00.

Evergy Inc. (NYSE: EVRG) saw its price objective raised to $66 from $60 by Merrill Lynch. This firm handles a fair number of utilities across Kansas and Missouri. It has a dividend yield of 3.3% and a 52-week range of $50.89 to $61.10. The consensus price target is $59.38.

Eversource Energy (NYSE: ES) saw its Merrill Lynch price objective raised to $75 from $68. This Massachusetts-based provider of electric distribution and transmission services also offers natural gas and water, and its dividend yield is 3%. The 52-week range is $52.76 to $72.26, and the consensus price target is $70.47.

Exelon Corp. (NYSE: EXC) operates a diversified utility company in the United States and Canada with nuclear, fossil, wind, hydroelectric and solar generating facilities. Merrill Lynch raised its price objective to $56 from $52 (versus a $49.76 close). The stock has a dividend yield of 2.9% and a 52-week range of $37.45 to $50.85. The consensus price target is $49.74.

FirstEnergy Corp. (NYSE: FE) operates a diversified utility with assets in coal, nuclear, hydro, natural gas, wind and solar holdings. Its price objective was raised to $46 from $41 (versus a $41.72 close) in the call, and the dividend yield is 3.6%. The firm noted that rerating prospects remain strong, as it reiterated its Buy rating. First Energy has a 52-week range of $32.92 to $42.13 and a consensus price target of $42.67.

Hawaiian Electric Industries Inc. (NYSE: HE) operates a utility business primarily in Hawaii. Its renewable energy sources include wind, solar, photovoltaic, geothermal, wave and more. Merrill Lynch raised its price objective to $37 from $34, which compares with the most recent close of $40.72. It has a 3.1% dividend yield and a 52-week range of $32.59 to $41.10. The consensus price target is $34.38.

IDACORP Inc. (NYSE: IDA) operates the Idaho Power Company for electricity in Idaho and Oregon. It saw its price objective raised to $100 from $85 (versus a $98.76 close). The dividend yield is 2.5%. The 52-week range is $84.82 to $102.44, and the consensus price target is $88.67.

NextEra Energy Inc. (NYSE: NEE) operates the largest American electric utility by market cap. Merrill Lynch raised its price objective to $226 from $185 (versus a $191.92 close) with its Buy rating. The firm sees NextEra as the largest operator of wind and solar with roughly 18 gigawatts in operation, and while the company has legacy tax equity structures that mature, it sees tax credits peaking in 2025. The stock has a dividend yield of 2.6%, a 52-week range of $155.06 to $195.55, and a consensus price target of $190.43.

NiSource Inc. (NYSE: NI) saw its Merrill Lynch price objective raised to $32 from $29. It operates as a regulated natural gas and electric utility in the United States. The dividend yield is 2.8%. Shares have traded between $23.23 and $28.85 in the past 52 weeks. The consensus price target is $27.64.

NorthWestern Corp. (NYSE: NWE) provides electricity and natural gas to residential commercial and industrial customers in Montana, Nebraska and South Dakota. Merrill Lynch raised its price objective to $69 from $65. The stock has a dividend yield of $3.3%, a 52-week range of $51.53 to $71.77 and a consensus price target of $63.20.

OGE Energy Corp. (NYSE: OGE) operates as an energy and energy services provider that provides physical delivery and related services for electricity and natural gas primarily in the south central United States. Merrill Lynch raised its price objective to $44 from $42 (versus a $42.84 close). Its dividend yield is 3.4%. The 52-week range is $31.49 to $43.76, and the consensus price target is $40.63.

Pinnacle West Capital Corp. (NYSE: PNW) saw its price objective raised to $106 from $97 (versus a $95.08 close) at Merrill Lynch. It operates the Arizona Public Service Company for electricity, and it offers a 3% dividend yield. Shares have traded in a 52-week range of $73.41 to $97.27 and have a consensus price target of $94.08.

PNM Resources Inc. (NYSE: PNM) operates a utility in Texas and New Mexico. Merrill Lynch raised its price objective to $49 from $46, which compares with a prior closing price of $47.30. The dividend yield is 2.5%, the 52-week range is $34.95 to $47.92 and the consensus price target is $42.50.

Portland General Electric Co. (NYSE: POR) engages in the generation, wholesale purchase, transmission, distribution and retail sale of electricity in the state of Oregon. Merrill Lynch raised its price objective to $55 from $50 (versus a $51.55 close). The dividend yield is 2.8%. The stock has a 52-week range of $39.18 to $52.60. The consensus price target is $46.67.

PPL Corp. (NYSE: PPL) saw its Merrill Lynch price objective raised to $32 from $30. It delivers electricity and natural gas in the United States and the United Kingdom. The dividend yield is 5.1%, and the 52-week range is $25.30 to $32.89. The consensus price target is $31.73.

Public Service Enterprise Group Inc. (NYSE: PEG) operates as an energy company primarily in the northeastern and mid-Atlantic United States. Merrill Lynch raised its price objective from $62 to $66. The dividend yield is 3.2%. The 52-week range is $49.02 to $60.09, and the consensus price target is $61.11.

Sempra Energy (NYSE: SRE) develops and operates energy infrastructure, as well as provides electric and gas services, in the United States and internationally. Merrill Lynch raised its price objective from $134 to $138 (versus a $124.47 close). The stock’s dividend yield is 3.1%. Shares have traded between $100.49 and $127.22 in the past year, and a consensus price target is $128.80.

Southern Co. (NYSE: SO) saw its Merrill Lynch price objective raised from $51 to $58. It operates the fourth largest utility company in the United States by market cap, and the dividend yield is 4.6%. The stock has a 52-week range of $42.42 to $52.65 and a consensus price target of $49.32.

Unitil Corp. (NYSE: UTL) operates an electricity and natural gas distribution business in New England. Merrill Lynch raised its price objective to $56 from $51, while the most recent close was $53.62. The dividend yield is 2.7%. The 52-week range is $44.86 to $55.75, and the consensus price target is $51.67.

WEC Energy Group Inc. (NYSE: WEC) provides regulated natural gas and electricity and nonregulated renewable energy services in the United States. Merrill Lynch raised its price objective to $82 from $76 (versus a $78.46 close). The dividend yield is 3.0%. The Merrill Lynch report noted that WEC Energy has acquired new wind projects that extended its taxpaying status and is looking to embark on solar. The shares have a 52-week range of $58.48 to $80.05. The consensus price target is $74.33.

Xcel Energy Inc. (NASDAQ: XEL) saw its Merrill Lynch price objective raised from $55 to $58. It serves residential, commercial and industrial customers across the midwestern and northern parts of the United States. The dividend yield is 2.9%. The consensus price target is $54.42, and the 52-week range is $41.99 to $57.51.

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