We expect Pepco Holdings, Inc. (POM: 15.98 +0.01 +0.06%) to face stiffer competition from its fully regulated peers with similar dividend yields, such as Progress Energy. Thus, we expect Pepco shares to Underperform its peers in the future.Pepco s $1.2 billion Mid-Atlantic Power Pathway (MAPP) transmission project is currently underway with an in-service date of 2014. However, the project could be delayed due to slower-than-expected load growth.
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.
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