Great Plains Energy, a regulated utility with upside

Great Plains Energy is a 100% regulated utility in Missouri and Kansas.  The combined ratebase of the regulated operating utilities is approximately $6 billion and the equity ratio  and allowed ROE are approximately 47.5% and 10%, respectively.  Moreover, the company plans to add approximately $1.6 billion to ratebase through 2015 due to environmental retrofits, transmission upgrades and RPS mandates.  This results in an earnings potential of $1.83 in 2012 and $2.32 in 2015.  However, the company is not expected to achieve its earnings potential in the near-term, for example, the consensus 2012 estimate is $1.49, or 81% of allowed ROE.

My price target is $26, which is predicated on the following assumptions: a) the company achieves 95% of its 2015 earnings potential; b) a 13.0x multiple; and c) discounted to 2013.  This implies a total return potential of 30%.

Cons: The company expects to file ratecases in 1q2012, and regulated utility stocks typically under-perform during the early stages of the ratecase filing; Historical discount due to regulatory lag and inability to earn allowed ROE of 10%, however the company has an action plan to address this issue; moderate equity financing needs of $100 mm to 150 mm over the next four years.

Catalysts: filing of ratecases in early 2012 should bring investor interest in the story.

Disclaimer: I am long GXP stock but do not intend to trade over the next 48 hours.