Bank of America: Naming SRE Our Top Pick Ahead of Today's MEDS Conversion
"SRE replaces ATG as our Top Pick, given the ebbing headwind of its mandatory convertible securities, which convert today (5/17/05). While our fundamental view of SRE remains unchanged, we would view any weakness from today's conversion as an ample buying opportunity for investors to build/add to a position in SRE.
"Recall our Buy rating is predicated on SRE's favorable growth opportunities and that it trades at an increasingly unwarranted discount to its peers. We also highlight the company's rapidly subsiding regulatory risks, including the positive conclusion of Phase I of its rate case and the CPUC's favorable ruling in the border price investigation.
"Our target price of $46 assumes a 14x multiple on our FY06 EPS estimate of $3.30, implying a potential return to target of ~24%, including SRE's below average 2.9% dividend yield."
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