Amid continued volatility in energy and utilities names such as Reliance Energy (A3/A), Dynegy (Ba1/BBB), El Paso (Baa2/BBB+), CMS Energy (Ba3/BB) and NRG Energy (Baa3/BBB-), analysts are offering a few names they say are not likely to be subject to the price swings of their peers. Wisconsin Energy (A2/A-), SCANA (A3/A), Southern Company (A3/A), Keyspan (A3/A) and Energy East (Baa2/BBB+) are all relatively stable, because they do not rely so heavily on trading profits, says Carol Levenson, director of research at Gimme Credit, an independent research firm. However, she warns that most are expected to sell assets to avoid rating downgrades, and concedes that few of these names are exceptionally cheap. Names she believes could outperform the sector are Dominion Resources (Baa1/BBB+) andExelon (Baa2/A). Dominion's 6.625% notes of '13 were bid at 204 basis points over Treasuries last Tuesday, while Exelon's 4.75% notes of '11 were 304 basis points over the curve. She also believes that Duke Energy (A1/A+), which does count on trading profits, may benefit from a flight to quality in the sector. Duke's 6.25% notes of '12 were 102 basis points over Treasuries.
Peggy Jones, analyst at ABN Amro, says she would strike Keyspan from this list, as it will be too highly leveraged if it manages to spin off its investment in an E&P company, and may face a downgrade if it cannot do so. She also questions the leverage at Wisconsin Energy, a company she does not follow as closely. Jones recommends the bonds of National Royal Utilities Cooperative Finance Corp., whose 6% notes of '06 (A1/A+) were bid at 106 basis points over the curve last Monday. She says the company will stay clear of trading-related difficulties, and that management is committed to doing what it can to maintain its rating. For similar reasons, she likes Consolidated Natural Gas, a Dominion subsidiary. That company's 5.375% notes of '06 were bid at 106 basis points over the curve last Tuesday.