The Ontario government is shooting itself in the foot over Hydro One, IA Securities says

Ontario premier Doug FordFollowing a board a board shakeup at Hydro One (TSX:H), Industrial Alliance Securities analyst Jeremy Rosenfield has cut his price target and rating on the stock.

After the market close Wednesday, Ontario Premier Doug Ford announced the retirement of Hydro One CEO Mayo Schmidt and the entire board of the company, whom he had promised to fire. Hydro One’s chief financial officer Paul Dobson will serve as interim chief.

The government of Ontario owns 47.4% of Hydro One.

Rosenfield says this development adds short term risk.

“Although we continue to view Hydro One as a defensive investment uunderpinned by (1) stable earnings and cash flows from its regulated utility businesses, (2) healthy organic rate base and earnings growth (4-6%/year through 2021), and (3) an attractive dividend (~5% yield, 70-80% target payout), the heightened potential for further political interference in the province’s electricity market and regulated utility framework represent key risk factors that are likely to outweigh Hydro One’s fundamentals over the near term.

In a research update to clients today, Rosenfield lowered his rating on Hydro One from “Buy” to “Hold” and cut his one-year price target on the stock from $26.00 to $24.00, implying a return of 23.5 per cent at the time of publication.

The analyst says all is not lost for Hydro One, but the news may take time to shake through the stock.

“(Hydro One is) shooting itself in the foot, for now,” the analyst says. “The outlook could improve once the government unveils detials of proposed market/regulatory changes, once the executive/board transition in complete, and once the AVA transaction receives all regulatory approvals. However, uncertainty is likely to negatively impact sentiment over the near term; the government appears to have (at least temporarily) impaired the value of its ownership interest in Hydro One.”