Selloff In Dynegy Shares Overdone; Citi Upgrades To Buy

Shares of Dynegy Inc. (NYSE: DYN) have lost 12 percent in the past one month. Citi’s Praful Mehta upgraded the rating for the company from Neutral to Buy, while reducing the price target from $21 to $19. The analyst commented that the pressure on shares, following the ECP buyout and Brexit, seemed to be excessive.

While the ECP buyout does impact valuation, Brexit has a very limited impact on Dynegy, analyst Praful Mehta noted.

ECP On Valuation

Dynegy purchased ECP's 35 percent interest at $1.5B, higher than Citi's valuation of $1.1B. This translates to a $2 per share in value dilution. Mehta mentioned, however, that taking into account the valuation of the entire ENGIE fleet and the current views on gas and capacity prices, the 35 percent interest purchase translates to $3 per share of value dilution.

The 100 percent ownership of ENGIE is expected to generate additional annual synergies of ~$7.5m, the analyst added.

“We continue to think DYN is well positioned if 2017 gas price do spike to the $3.50 - $4.00 level,” Mehta commented.