United Utilities rallies on Bernstein upgrade; Centrica also lifted

7th Sep 2015 14:31

(ShareCast News) - United Utilities rallied after Bernstein upgraded the stock to 'outperform' from 'market perform' and lifted the price target to 1,050p from 1,040p.It said the upgrade was motivated by the valuation gap that has opened between it and Severn Trent since it downgraded both stocks to 'market perform' in June.The broker added that trading at a premium of just 13% to its estimated full-year 2016 regulatory asset value and offering an attractive internal rate of return to potential acquirers, United Utilities offered an attractive risk/reward opportunity for investors.Bernstein also took the opportunity to upgrade Centrica to 'outperform' from 'market perform', keeping the price target at 280p.The analysts attributed the upgrade to valuation, with the stock having declined around 10.5% since the strategy day in July, underperforming the Eurostoxx Utilities index by around 2.5%."By our estimates, the current valuation ascribes almost no value to the E&P business (around £2.6bn value in our sum-of-the-parts), the division most impacted by the negative commodity environment."At the current valuation, the risks for the stock are skewed to the upside, said Bernstein.At 1440 BST, United Utilities was up 2.2% at 853.50p while Centrica was 0.1% higher at 233.60p.