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Market Price (5/4/2017): $68.36/share; ST-Target: $85/share; NIV: $99/share
BKH is executing on its plan but big plans ahead
Integration of SourceGas is complete and showing investors merits of deal. BKH execution highlighting stock but much depends on cost of service gas program (COSGP) direction. If approve, BKH should have clear skies, if not we look for pull back below $60. We feel BKH will get it done because liquids revenue to go to consumers, which is windfall for them. Looking for renewed filing for cost-of-service-gas program (COSGP) in all jurisdictions in 1H2017. Focus on efficiency and cost reductions to continue. Maintaining 2017 AEPS guidance of $3.45-$3.65. We look for BKH to pull trigger on large acquisition within 12-18 months continuing its focus on Utilities. We still favor Mancos shale for source of COSGP. We remain skeptical re: COSGP, but if it BKH pursues COSGP then, in our opinion, BKH should buy producing reserves now as a base then methodically and systematically develop its Mancos shale play with the intent of transferring reserves as it’s developed into the COSGP as needed. Mancos shale play could add between $20/share-to-$61/share to BKH’s share price at the peak and add some $1.19/share-to-$3.68/share to BKH’s AEPS. 1Q17 results strong. Raising ST-Target to $85.