Positive Regulatory Relations A Plus For PNM Resources

Argus reiterated its Buy rating on PNM Resources Inc (NYSE: PNM) given the company's stronger forward earnings visibility and positive relations with regulators at both the state and federal levels.

However, the brokerage cut its target price to $38 from $40, primarily reflecting the decline in industrywide P/E multiples since the beginning of third quarter, as well as expectations for a Fed rate increase in December.

"Even so, we think that PNM, with its strong finances and solid management execution, will outperform most other utilities in a rising rate environment," analyst Gary Hovis wrote in a note.

Hovis noted that PNM should benefit from an expanding infrastructure improvement program, cost controls, and a favorable regulatory environment in both Texas and New Mexico.

Meanwhile, the analyst expects the company to generate more than 70 percent of its funding needs from internal sources through at least 2018 and has the potential to generate total annual returns for shareholders of 5-6 percent over the next four to five years.

The company will release its third quarter financial results on October 28. Management projects full-year consolidated operating earnings of $1.55-$1.65 per share.

However, Hovis cut his 2016 EPS estimate to $1.60 from $1.65 and 2017 estimate to $1.87 from $1.90, as he believes rising depreciation and property tax expenses would weigh on the company's bottom line at least through second quarter 2017.