Friday, KeyBanc Capital upgraded DPL Inc. (DPL) shares to Buy from Hold with a price target of $26. The brokerage lowered its 2009 EPS estimate to $2.15 from $2.20, while raising its 2010 estimate by $0.05 to $2.50.
Analyst Paul Ridzon upgraded the stock given an attractive valuation coupled with potential positive catalysts, including Ohio approval of the company's rate settlement, 2010 guidance and the long-term potential to use cash flow for accretive purposes.
The analyst recently met with management of DPL, and after revisiting the story and updating his model, he upgraded the stock to Buy. The analyst's price target is $26, representing total return potential of nearly 20%.
The analyst noted that DPL reiterated its 2009 earnings guidance of $2.00-$2.30 per share and believes that lower retail and wholesale revenues can be offset by operational and maintenance cost savings and the realization of about $60 million in pretax coal optimization gains.
The analyst believes key earnings drivers for 2010 include benefits from the adoption of a fuel clause and environmental investment recovery riders and improving plant performance. DPL may give 2010 earnings guidance after its Ohio Electric Security Plan is approved, potentially on 2009 second quarter earnings conference call.
The analyst estimates that free cash flow from operations will continue to improve, with management assessing accretive uses for cash generated through investment, dividend hikes or balance sheet restructuring. With an unplanned outage and mild weather thus far, the analyst lowered his 2009 estimate.
Currently, DPL is down $0.03 or 0.13% and trading at $22.68.
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