Downgrade and its Impact

WEC Energy (NYSE:WEC) is currently experiencing fluctuations as Bank of America downgraded the utility to Underperform from Neutral with a $78 price target, down from $84. This decision was driven by the assessment that the stock is trading at an ~11% premium to the broader utility group despite a consistent stream of cautious data points.

Reasons Behind the Downgrade

According to BofA’s Julien Dumoulin-Smith, the downgrade is influenced by recent regulatory data points, particularly a negative surprise in the Illinois gas outcome, along with ongoing balance sheet pressures that are likely to limit earnings upside in the coming years. WEC (WEC) had historically exceeded quarterly guidance until last year, when it missed quarterly guidance in Q1. Moreover, it did not raise its full-year outlook for 2023 as it had done previously. Dumoulin-Smith added, “along with more equity in the plan to fund capital and lower Illinois capex likely coming, the data points altogether suggest a less premium setup than in the past.”

Effect on Other Companies

The analyst also downgraded Ameren (AEE) to Neutral from Outperform, with a $77 PT, lowered from $82. This action is based on the expectation that lower Illinois capex will drive the EPS compound annual growth rate below the current 6%-8% when the company reports Q4 results next month.