Yahoo Finance AI, Data Center, EV to Boost Electric Power Utility: 5 Picks
Electric power utility is emerging as an industry promising gains in the long term. This space is set to see a massive acceleration in demand from artificial intelligence (AI)-driven data center growth, widespread adoption of electric vehicles (EV), and an increase in residential demand. Investors should closely watch the players in this industry with a long-term investment perspective.
Impressive Projections
Since 2010, the total demand for electric power in the United States has remained stable at around 4,000 terawatt-hours (TWh). The Electric Power Research Institute, in its “Powering Intelligence: Analyzing Artificial Intelligence and Data Center Energy Consumption” report, projected that data centers would consume 9.1% of total U.S. electricity generation by 2030 compared with 4.6% at present.
The report said, “AI queries require approximately ten times the electricity of traditional internet searches and the generation of original music, photos, and videos requires much more.” The Federal Energy Regulatory Commission reported that the data center electricity demand across the United States is expected to climb to 35 gigawatts (GW) in 2030 from 19 GW in 2023.
A research report by Rystad Energy predicted that the combined expansion of traditional and AI-driven data centers, along with chip foundries, will increase the cumulative demand for U.S. electric power by 177 TWh from 2023 to 2030, reaching a total of 307 TWh.
EVs will emerge as the second major catalyst for power demand growth in the United States. The expansion of battery EVs will raise the demand for electricity from 18.3 TWh in 2023 to 131 TWh in 2030. Rystad Energy estimates that total U.S. power demand across the residential, commercial, and industrial sectors will reach 4,500 TWh in 2030.
Major investment bank The Goldman Sachs Group Inc. (GS) forecasts that the U.S. data center power demand will grow 160% by 2030 owing to the ongoing AI revolution. The report said, “At present, data centers worldwide consume 1-2% of overall power, but this percentage will likely rise to 3-4% by the end of the decade. In the United States and Europe, this increased demand will help drive the kind of electricity growth that hasn’t been seen in a generation.”
Other Positives
Utilities, in order to maintain, upgrade and expand operations, approach capital markets for loans as the funds generated from internal sources are not always sufficient. Therefore, a low interest rate regime is beneficial for the electric power industry.
Since the July 2023 rise, the Fed has not increased the benchmark lending rate, keeping it static in the range of 5.25-5.5%. The CME FedWatch tool currently shows a 65.3% probability that the Fed will reduce the existing benchmark lending rate by at least 25 basis points in September. The interest rate derivative tool also shows a 64.2% probability that the central bank will cut interest rates by 50 basis points by December 2024.
Consequently, operators who are planning to invest large amounts in infrastructure upgrades and add renewable sources of energy to produce clean electricity may be able to borrow funds at a lower rate, which will decrease the overall cost of the long-term projects, raising the electric power utility’s profit and margins.
Our Top Picks
We have narrowed our search to five utility stocks that are regular dividend payers. These stocks have good potential for the rest of 2024 and have seen positive earnings estimate revisions within the last 60 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our five picks in the past three months.
Image Source: Zacks Investment Research
Vistra Corp. VST operates as an integrated retail electricity and power generation company. VST retails electricity and natural gas to residential, commercial, and industrial customers across 20 states in the United States and the District of Columbia.
VST operates through six segments: Retail, Texas, East, West, Sunset, and Asset Closure. VST is involved in electricity generation, wholesale energy purchases and sales, commodity risk management, fuel production, and fuel logistics management activities.
Vistra has an expected revenue and earnings growth rate of 15% and 10%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 4% over the last 30 days.
VST has a current dividend yield of 1%. The average price target of brokerage firms represents an increase of 31.5% from the last closing price of $87.70. The brokerage target price is currently in the range of $103-$133.
Evergy Inc. EVRG continues to benefit from its expansion of operations in the transmission market through collaborations, strategic acquisitions and partnerships. Through planned investments and the Integrated Resource Plan, EVRG aims to add more renewable assets and become carbon neutral by 2045. EVRG improves shareholders’ value through dividend payments and has enough liquidity to meet debt obligations.
Evergy has an expected revenue and earnings growth rate of 2.8% and 8.5%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 60 days.
EVRG has a current dividend yield of 4.9%. The average price target of brokerage firms represents an increase of 10% from the last closing price of $52.79. The brokerage target price is currently in the range of $51-$64.
PG&E Corp. PCG boasts a solid portfolio of regulated utility assets that offer a stable earnings base and long-term growth potential. PCG’s planned capital expenditure of $62 billion for the 2024-2028 period bodes well for its long-term growth prospects. PCG is also expanding its renewable energy portfolio by enhancing its presence in electric vehicle charging and battery energy storage markets.
PG&E has an expected revenue and earnings growth rate of 4.8% and 9.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.7% over the last 60 days.
PG&E has a current dividend yield of 0.2%. The average price target of brokerage firms represents an increase of 20.7% from the last closing price of $17.08. The brokerage target price is currently in the range of $17-$23.
PPL Corp.’s PPL strategic investments should further expand its clean energy generation capacity and help achieve carbon neutrality by 2050. PPL is further expanding its operations through the construction of new generation, transmission and distribution projects. PPL completed the Narragansett Electric acquisition and should benefit from new customer additions. Our model predicts PPL’s total operating revenues to increase in 2024.
PPL has an expected revenue and earnings growth rate of 1% and 6.9%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last 60 days.
PPL has a current dividend yield of 3.8%. The average price target of brokerage firms represents an increase of 8.7% from the last closing price of $27.42. The brokerage target price is currently in the range of $27-$32.
Portland General Electric Co. POR is a vertically integrated electric utility that serves residential, commercial, and industrial customers in Oregon. POR has more than a century of experience in power delivery. POR generates power from a diverse mix of resources, including hydropower, coal and natural gas. POR also participates in the wholesale market by purchasing and selling electricity and natural gas to utilities and energy marketers.
Portland General Electric has an expected revenue and earnings growth rate of 10.3% and 29.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 30 days.
Portland General Electric has a current dividend yield of 4.7%. The average price target of brokerage firms represents an increase of 7.8% from the last closing price of $42.54. The brokerage target price is currently in the range of $42-$55.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
PPL Corporation (PPL) : Free Stock Analysis Report
Pacific Gas & Electric Co. (PCG) : Free Stock Analysis Report
Portland General Electric Company (POR) : Free Stock Analysis Report
Vistra Corp. (VST) : Free Stock Analysis Report
Evergy Inc. (EVRG) : Free Stock Analysis Report
