What: Shares of utility Dynegy Inc (NYSE: DYN) dropped as much as 11.1% in trading on Friday after being downgraded by an analyst. At 3:10 p.m. EDT shares were still 10.7% lower on the day.
So what: Citigroup downgraded Dynegy from buy to neutral, and put a price target of $22 on the stock. The stock has surged from a 52-week low of $7.20 per share all the way to $18.35 as I'm writing, so the recovery may be overdone, especially when you consider losses the company has reported for three straight quarters.
I'll also note that analysts are expecting a loss of $0.92 per share this year, so it may be hard to see value in this utility, especially considering the macro challenges wholesale energy producers face from renewable energy and falling wholesale prices.
Now what: The utility sector in general is in a tough position today, suffering from very slow demand growth and new entrants into the power generation market like wind and solar. The industry has never had to deal with these kind of threats before, and it's not clear if companies like Dynegy really know how to adapt strategically. I'd be wary of any non-regulated utility investment today given the market uncertainty. Until a company like Dynegy can prove itself able to evolve to meet the new energy future, it'll be in a rough position, and losses may continue longer than investors would like.