DTE Energy To Trade In A Narrow Band In Near Term: Analyst Explains Why

BMO Capital Markets analyst James M. Thalacker reiterated the Market Perform rating on DTE Energy Company DTE, lowering the price target to $106 from $125.

While Thalacker acknowledges that DTE shares currently trade at multiple points below its historical premium average, the analyst expects shares to trade in a narrow band in the near term, given the size of the current electric rate case. 

Challenges to offset the 2022 rate case with one-time cost savings and storm-related costs are adding pressure to its mitigation efforts, the analyst adds. 

Public statements about storm-related credits also play a role in this assessment, according to Thalacker.

Also Read: DTE Energy Plans To Raise Rates: Will These 2 High Yielding Investments Do The Same?

The ALJ filed their PFD in DTE's electric rate case. The findings, though less favorable than the staff's recommendation, still represent a reasonable 50% of DTE's request for a revenue requirement.

Thalacker adds that the ROE/equity layer is in line with staff, so the lower revenue requirement largely reflects ratebase and O&M. 

The lower rate relief is predicated on a similar capital structure of 50.0% equity, ROE of 9.80%, and ~$676 million in a lower rate base, totaling ~$21.86 billion.

The analyst thinks, while a settlement would have been preferable, the positions suggest common ground amongst stakeholders, which likely reduces the risk in fully adjudicating the proceeding, especially with the stock trading now at a 2% discount on our 2025 EPS of $7.16.

The analyst thinks regulatory certainty is important to helping derisk the story and supporting the multiple rerates.

Thalacker is equally focused on the company's upcoming 3Q report and EEI presentation, especially its early 2024 outlook.

Given management's significant cost mitigation efforts in 2023, investors will be looking for a y/y growth outlook in line with its long-term growth objective to allow further multiple expansion, Thalacker writes.  

Price Action: DTE shares are trading higher 0.82% $94.97 on the last check Friday.