Investec has revisited the utilities sector and evaluated the strategic outlook for stocks under its coverage and concluded that while opportunities exist there are also challenges, especially in respect of the potential accelerated future of distributed generation and storage technologies.
The broker said: "While this is a story about growth and 'smart' innovation, we highlight that the transition is subject to two-way risks, with no assurance of value creation.
"We continue to prefer businesses which are diversified, and robust against a broad range of scenarios for European energy markets."
Analysts have therefore made several changes to their stock recommendations and price target.
Most notably, SSE (LON:SSE) has been upgraded to 'buy' from 'hold' (target increased to 1,650 pence from 1,500 pence), given the company's diversified set of businesses across generation, networks, and supply.
National Grid (LON:NG.) also moves to 'buy' from 'hold' (target unchanged at 1,030 pence) due to its sector leading RCV growth driven by transmission growth and the US business.
Meanwhile, Drax (LON:DRX) was downgraded to 'hold' from 'buy' (target lifted to 400 pence from 370 pence) following the recent strong run.
The shares are up 20 per cent in the past month.
Nevertheless, the broker said that it is "supportive of the Drax's acquisition of Opus Energy as a significant strategic shift towards a more diversified and vertically-integrated business with longevity post-2027".
Also in the utilities space, Credit Suisse has cut water and waste management group Pennon (LON:PNN) to 'underperform' (from 'neutral').
"Downside in energy-from-waste (EfW) is materialising more quickly than we anticipated and we see risk of a potential liability associated with an unconsolidated financing JV," analyst Guy MacKenzie commented.
"We cut EPS c3-4% on waste earnings and our TP to 680p (from 800p) primarily on our Viridor valuation, including the Greater Manchester contract and Avonmouth EfW."
Elsewhere, Exane BNP Paribas took a fresh look at Primark owner Associated British Foods (LON:ABF) in light of the company's latest trading update.
"While we continue to be believers in the strong growth prospects for Primark internationally, our SOTP methodology derives insufficient upside for us to maintain our Outperform rating on the stock," Exane said.
The broker has therefore downgraded its investment rating to 'neutral', which it said is very much a mechanical reflection of its revised valuation (target price cut to 2,800 pence a share from 2,900 pence).
In the oil & gas sector, Barclays Capital has cut Premier Oil (LON:PMO) to 'equal weight' (from 'overweight') following the company's refinancing update and advises investors to "exercise caution" until the details are confirmed.
However, the bank added: "That said, we also recognize that the company continues to offer significant exposure to any further improvement in oil price sentiment, while the refinancing should enable management to begin outlining the portfolio's potential for medium term growth."
Barclays has left its price target unchanged at 100 pence per share.
(LON:ABF) Associated British Foods PLC share price was -5.5p at 2570.5p
(LON:DRX) Drax Group PLC share price was +1.05p at 382.05p
(LON:NG.) National Grid PLC share price was +8.8p at 959.4p
(LON:PMO) Premier Oil PLC share price was -0.12p at 91.63p
(LON:SSE) SSE PLC share price was +8.5p at 1555.5p