Dynegy downgraded to "Sell" from "Neutral"

NEW YORK - Shares of power utility Dynegy Inc. have risen too far, a UBS analyst said Thursday in downgrading the stock.

Over the course of the second quarter the stock more than doubled in value. Analyst Ronald Barone said the stock has climbed to levels that are "unwarranted" and will likely fall back in line with its peer group or to even lower levels.

"We continue to believe Dynegy is relatively poorly positioned with respect to its large coal position in the Midwest," Barone said, adding that sharp drops in electric volumes in the U.S., driven by dramatic declines in industrial sales, will likely pressure the stock back down. In addition, Barone said he expects bearish natural gas fundamentals to hurt Dynegy.

Houston-based Dynegy in May reported that its first-quarter loss more than doubled year-over-year as tumbling stock and power prices forced the company to write down its own market value. Dynegy also cut 2009 guidance for the third time.

Barone downgraded the company's stock to "Sell" from "Neutral," and held his price target at $1.80.

Dynegy shares fell 14 cents, or 6.1 percent, to close Thursday at $2.15.

Barone's call follows that of Jefferies & Co. analyst Paul Fremont, who said last month that Dynegy's stock and those of other utilities were "overvalued at current levels," given that commodity prices aren't expected to improve significantly in the near-term amid the current economy.

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