In a note to clients on Monday, JPMorgan analysts said utility sector weakness has likely gone too far. The company has taken this view regardless of the direction bond yields take from here.
“If yields fall, as is our main view, that should help the sector,” the analysts wrote. “In the opposite scenario, the broader market could weaken and the low beta typical of utilities could come to the fore.”
The bank said its clients are concerned about the perceived high leverage of the sector, but analysts believe this is misplaced as leverage is higher than in the past, but cash flow generation is strong and shares of Public services have a solid investment grade.
“Energy prices should not decline from now on. Industrial demand is starting to recover. Utilities have been reduced to pre-Ukraine levels, but energy prices remain higher than pre-Ukraine” said the bank.
The analysts also noted that “the relative profits of utilities continue to rise, making the sector very attractive today.”
!function(f,b,e,v,n,t,s){if(f.fbq)return;n=f.fbq=function(){n.callMethod? n.callMethod.apply(n,arguments):n.queue.push(arguments)};if(!f._fbq)f._fbq=n;n.push=n;n.loaded=!0;n.version=’2.0′;n.queue=();t=b.createElement(e);t.async=!0;t.src=v;s=b.getElementsByTagName(e)(0);s.parentNode.insertBefore(t,s)}(window, document,’script’,’https://connect.facebook.net/en_US/fbevents.js’);
