On Monday, Barclays made a notable adjustment to its stance on Xcel Energy stock(NASDAQ:XEL), moving its rating from Equalweight to Overweight. Alongside the upgrade, the firm has adjusted the stock's price target to $54.00, a decrease from the previous $61.00 target.
The upgrade comes as a response to Xcel Energy's significant underperformance due to the Texas Smokehouse fire. The company's shares have fallen behind its XLU peers by 18% year-to-date, which Barclays sees as presenting an appealing opportunity to invest in a company with a strong balance sheet, management team, and decarbonization strategy, now at a substantial discount compared to its peers.
Despite the ongoing concerns surrounding the Smokehouse fire, which is currently 90% contained and has affected approximately 400 to 500 structures, Barclays believes the potential liabilities from the wildfire claims are more than reflected in the current stock price. The firm's confidence is bolstered by Xcel Energy's insurance coverage, which stands at $500 million for the year 2024 and could potentially cover the full liability from the event.
Barclays acknowledges that the wildfires will continue to impact Xcel Energy's stock multiple and supports the application of a price-to-earnings (P/E) discount. Nonetheless, the stock is trading at an 11.5% discount to its large-cap peer group, which is seen as attractive.
This attractiveness is further justified by Xcel Energy's industry-leading financials, with a 17-18% funds from operations to debt ratio, its management quality, upcoming wildfire hardening programs in Colorado and potentially SPS, and a path to further catalysts.
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