Black Hills upgraded at BofA as Northwestern merger boosts strategic outlook

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Black Hills (NYSE:BKH [https://seekingalpha.com/symbol/BKH]) -0.8% in Wednesday's trading despite receiving an upgrade at Bank of America to Neutral from Underperform with a $64 price target, believing its strategic positioning following the merger [https://seekingalpha.com/news/4486885-utilities-black-hills-northwestern-energy-to-merge-in-all-stock-deal] with NorthWestern Energy (NWE [https://seekingalpha.com/symbol/NWE]) is an improvement over the standalone company.

However, BofA analyst Ross Fowler said he remains concerned over debt refinancing and likely equity needs to fund capital spending, and he awaits details on how new management plans to achieve its 5%-7% EPS compound annual growth rate; the legacy 4%-6% EPS CAGR is below average, and regulatory and execution risk around large projects could keep valuation constrained until growth visibility improves, the analyst said.

Fowler noted the merger deal requires no new equity, but it increases the importance of internal funding, and while management has not formally addressed dividend strategy, the combined entity may need to revisit its payout ratio post-close to support capex with retained earnings.

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* Why I Am Upranking Black Hills From Hold To Buy [https://seekingalpha.com/article/4807374-why-upranking-black-hills-stock-from-hold-to-buy-q2-earnings]
* Black Hills: How Defensive Is Your Utility? [https://seekingalpha.com/article/4797665-black-hills-stock-how-defensive-is-your-a-utility]