JPMorgan Sees U.S. Power Companies Raising Profit Targets as Demand Gains

U.S. power companies may raise their 2010 earnings forecasts on increasing electricity demand, driven by hot weather and expanding manufacturing, JPMorgan Chase & Co. said.

“Power demand continues to experience a healthy rebound as industrial demand continues to improve,” Andrew Smith, an analyst at JPMorgan in Houston, said today in a report to clients.

Smith said top picks to gain from the improving outlook include Princeton, New Jersey-based NRG Energy Inc., the second- largest power producer in Texas. CenterPoint Energy Inc., the Houston area’s electricity distributor, and CMS Energy Corp., Michigan’s second-largest utility owner, have attractive dividend yields and trade at low valuations relative to other regulated utility companies, he said. The analyst has “overweight” ratings on all three stocks.

U.S. power companies will raise 2010 profit forecasts by 3 percent to 5 percent following their third-quarter earnings reports, Smith said.

NRG rose 42 cents, or 2 percent, to $21.79 as of the 4 p.m. close of New York Stock Exchange composite trading. CenterPoint gained 15 cents to $15.21, and Jackson, Michigan-based CMS climbed 13 cents to $17.65.

NextEra Energy Inc., based in Juno Beach, Florida, is JPMorgan’s preferred stock among companies owning both regulated and unregulated power plants, according to the report. NextEra rose 34 cents to $54.61.

To contact the reporter on this story: Katarzyna Klimasinska in Houston at kklimasinska@bloomberg.net.

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