UPDATE 1-Goldman says warming up to US regulated utilities

June 11 (Reuters) - Goldman Sachs said it is becoming incrementally more positive on U.S. regulated utilities given their valuation levels versus historical trends, the interest rate environment, and the group's relative underperformance versus the Standard & Poor's 500 .SPX.

The subsector is down 12 percent year-to-date, while the S&P 500 which is up almost 4 percent over the same period, analyst Michael Lapides wrote in a research note to clients.

"The consensus forecasts have come down after first-quarter 2009 reporting and seem in line with our estimates, thereby removing the negative earnings-per-share revision overhang on the group," he added.

Lapides believes the current interest rate environment should favor the group as the regulated utilities' dividend yield of 5.7 percent looks attractive versus an expected 10-year Treasury yield of 2.8 to 3.0 percent as forecast by Goldman.

Share prices of regulated utilities generally benefit from low interest rate environments, said the analyst, who remained "neutral" on the sector.

"However, we expect weak near-term electricity demand will continue to weigh on revenues as demand declined approximately 3 percent in the first few months of 2009, and second-half of 2009 and 2010 growth will be below trend," the analyst said.

Lapides upgraded Great Plains Energy Inc (GXP.N) to "buy" from "neutral" and said the company was one his top picks among the small- and mid-cap regulated utilities.

He downgraded Portland General Electric Co (POR.N) to "neutral" from "buy" on valuation.

American Electric Power Co Inc (AEP.N) remained the analyst's favorite among large-cap stocks within his coverage.

Lapides reiterated his "conviction sell" rating on Consolidated Edison Inc (ED.N) and "sell" rating on NStar (NST.N).

For alerts, please double-click on [ID:WNAB8759] . (Reporting by Hezron Selvi in Bangalore; Editing by Anne Pallivathuckal)