Pepco Holdings Inc. (POM) engages in both regulated utility and unregulated businesses. Pepco, also referred as PHI, is one of the largest energy delivery companies in the Mid-Atlantic region, delivering a combined 50,000 gigawatt hours (GWh) of power to nearly 1.9 million customers in Delaware, the District of Columbia, Maryland and New Jersey.
Pepco has been an attractive investment based on its relatively high dividend yield of 7.0%. Going forward, however, we expect the stock to face stiffer competition from its fully regulated peers with similar dividend yields. Thus, we expect Pepco shares to Underperform its peers in the future.
We initiate coverage on Pepco with an Underperform recommendation as we expect the stock to face stiffer competition from its fully regulated peers with similar dividend yields, going forward. Our $14 target price values the stock at 11.3x 2011 EPS.Zacks Investment Research
