BofA Downgrades NorthWestern Energy to No Rating Following Black Hills Merger

BofA analyst Ross Fowler has moved NorthWestern Energy to No Rating from Buy due to the all-stock merger of equals with Black Hills Corp. Fowler notes that the transaction is "largely positive and accretive" for NorthWestern but shares will now trade away from fundamentals and off the Black Hills valuation.

BofA analyst Ross Fowler has moved NorthWestern Energy (NWE) to No Rating from Buy, citing the all-stock merger of equals with Black Hills Corp. (BKH) [1]. The merger, announced in August 2025, has been described as "largely positive and accretive" for NorthWestern, but shares are expected to trade away from fundamentals and off the Black Hills valuation [2].

Fowler notes that while the merger is expected to be accretive to NorthWestern's earnings per share (EPS) in the first year following the close of the transaction, the combination will lead to a significant change in valuation. The merger will result in NorthWestern shareholders receiving a fixed exchange ratio of 0.98 shares of Black Hills for each share of NorthWestern, implying an approximately 4% premium [3].

The combined company will have a pro forma market capitalization of approximately $7.8 billion and a combined enterprise value of $15.4 billion. The merger will create a premier regional regulated electric and natural gas utility company, serving approximately 2.1 million customers across eight contiguous states [3].

The merger is expected to increase the long-term EPS target growth rate to 5% to 7%, greater than both Black Hills and NorthWestern on a standalone basis. The combined company will also have substantial cash flows to support a customer-focused capital investment program and maintain an ongoing strong investment-grade credit quality [3].

However, BofA remains concerned over debt refinancing and likely equity needs to fund capital spending. The combined entity may need to revisit its payout ratio post-close to support capex with retained earnings. Fowler awaits details on how new management plans to achieve its 5%-7% EPS compound annual growth rate [2].

The merger is expected to be completed in the near future, with both companies aiming to deliver benefits to all stakeholders, including customers, employees, shareholders, and the communities they serve [3].

References:
[1] https://www.tipranks.com/news/the-fly/northwestern-energy-moved-to-no-rating-at-bofa-thefly
[2] https://seekingalpha.com/news/4487606-black-hills-upgraded-at-bofa-as-northwestern-merger-boosts-strategic-outlook
[3] https://ir.blackhillscorp.com/news-releases/news-release-details/black-hills-corp-and-northwestern-energy-combine-all-stock