Historically, utility stocks have been safe havens for investors looking for consistent quarterly dividends and a buffer against economic downturns. Even during economic hardship, consumers typically pay their electricity bills. While those attributes remain important, they are no longer the primary reasons to invest in utility stocks today.
Utility stocks have excelled in 2024, capitalizing on one of the year’s major investment themes - artificial intelligence (AI). This is due to utilities supplying the electricity needed to power the massive AI data centers being constructed across the U.S. With that, companies in the utility industry are now splitting into two groups - those poised to benefit from the surging demand driven by artificial intelligence and those expected to experience slower growth.
In this article, we will explore two utility stocks, PPL Corporation (PPL) and Entergy Corporation (ETR), which analysts have identified as potential beneficiaries of the increasing demand for AI in 2025.
AI Utility Stock #1: PPL Corporation
With a market capitalization of $23.8 billion, PPL Corporation (PPL) is a utility holding company that delivers electricity and natural gas (NGG25) services across various U.S. regions, primarily in the Northeastern and Southeastern states. Through its subsidiaries in Pennsylvania, Kentucky, Virginia, and Rhode Island, the company supplies energy to residential, commercial, and industrial customers. PPL is structured into three main regulated segments: Pennsylvania Regulated, Kentucky Regulated, and Rhode Island Regulated.
Shares of the utility company gained 16.7% over the past year.
Analysts Bullish on PPL on Rising Demand for Data Centers
Jefferies recently called PPL “a top utility idea for 2025,” citing its Kentucky generation opportunities and Pennsylvania transmission potential to support new data centers.
JPMorgan and Morgan Stanley also favor PPL for its potential to profit from data-center deals. JPMorgan believes “utilities have the best risk-reward of all the defensive bond proxies” in 2025. At the same time, Morgan Stanley favors utilities due to their “underappreciated growth upside.”
JPMorgan rates PPL stock as “Overweight” with a price target of $37. In a late-October research note, the firm’s analyst told investors that PPL is well-positioned to capitalize on significant wires investment needs across its portfolio, with data center connections likely to reduce customer bills. JPMorgan views PPL as offering “top-tier growth, [a] low-risk investment profile, robust balance sheet,” and notably lower storm and wildfire risk than its peers.
Morgan Stanley maintains an “Overweight” rating on PPL stock with a price target of $35.
How Did PPL Perform in Q3?
PPL Corp. reported its third-quarter earnings results on Nov. 1. PPL earnings from ongoing operations stood at $0.42 per share, in line with expectations. Its operating revenues grew 1.5% year-over-year to $2.07 billion, beating Wall Street’s estimates by $250 million. The growth was fueled by higher operating revenues in both the Kentucky Regulated and Rhode Island Regulated segments, which were partially offset by lower operating revenues in the Pennsylvania Regulated segment.
Meanwhile, the company continued to make significant progress in achieving its 2024 priorities throughout the third quarter. PPL is on track to complete about $3.1 billion in infrastructure improvements this year, aiming to advance a reliable, resilient, affordable, and cleaner energy future for its customers. Also, through its ongoing business transformation initiatives, the company targets up to $130 million in annual O&M savings this year compared to the 2021 baseline (before the dividend cut and company restructuring).
Encouraged by robust financial performance year-to-date and continued execution of the business plan, management narrowed its 2024 ongoing earnings forecast range. With that, PPL adjusted the range to $1.67 to $1.73 per share from $1.63 to $1.75 per share, shifting the midpoint up by a penny to $1.70 per share.
Looking ahead, the company reiterated its projection of achieving 6% to 8% annual earnings and dividend growth through at least 2027. Management is dedicated to executing its capital plan, which encompasses $14.3 billion in infrastructure improvements from 2024 to 2027. The company also aims to reach its annual operations and maintenance savings target of at least $175 million by 2026, measured from the 2021 baseline.
The company’s long-term growth prospects are bolstered by new opportunities in areas like data centers. Both the Kentucky and Pennsylvania jurisdictions are well-positioned to capitalize on the increasing demand for electricity from AI, as evidenced by the growing number of requests for data centers. Other potential growth drivers include new generation in Kentucky, new enterprise-wide technology investments, and enhanced resiliency investments across all its jurisdictions.
PPL Valuation, Dividend, and Analysts’ Estimates
According to Wall Street estimates, PPL is expected to report 7.5% year-over-year adjusted EPS growth to $1.72 in FY24. Also, Wall Street anticipates the company’s revenue to grow 1.17% year-over-year to $8.41 billion.
PPL Corp. has a long history of paying dividends. The company boasts a track record of paying dividends for 24 consecutive years, roughly in line with the sector median. On Jan. 2, PPL paid its shareholders a quarterly dividend of $0.2575 per share, in line with the previous. Its annualized dividend of $1.03 per share translates to a dividend yield of 3.19%, which falls below the sector median of 3.80%. While the dividend yield is slightly lower than that of most of its peers, it is well covered by earnings and appears quite safe.
In terms of valuation, the stock is currently trading at 18.90 times the consensus earnings estimate (non-GAAP) for 2024. This is above the sector median of 17.39x and its five-year average of 16.59x. However, given its solid fundamentals and strong growth prospects, I do not believe the stock is overvalued at current levels.
What Do Analysts Expect for PPL Stock?
PPL Corp. stock has a consensus “Moderate Buy” rating. Out of the 16 analysts offering recommendations for the stock, 10 rate it as a “Strong Buy,” two as a “Moderate Buy,” and four give a “Hold” rating. The mean price target for PPL stock is $35.81, which is about 11% above the Jan. 3 closing price.
AI Utility Stock #2: Entergy Corporation
Entergy Corporation (ETR) is a regulated electric utility operating primarily in the U.S. states of Texas, Louisiana, Arkansas, and Mississippi. It currently has a market cap of $32.9 billion.
Shares of Entergy Corp. rallied 48.8% over the past 52 weeks.
Meta Selects Entergy as Partner for Major Data Center Project
In early December, Entergy announced a deal with Meta Platforms (META), the owner of Facebook, to construct three natural gas plants. The three plants are projected to contribute about 2.3 gigawatts of new capacity, with two-thirds located near Meta’s planned data center in northeast Louisiana.
Entergy said in filings that Meta has paid upfront to reserve gas turbines and transmission lines for the project and has agreed to cover the costs should the project fall through. Also, Meta will pay a minimum monthly charge for 15 years to cover “the full annual revenue requirement for the planned generators.” In addition, the tech giant has pledged to finance 1.5 gigawatts of solar and battery capacity to meet Entergy’s “long-term planning needs” and contribute to a proposed carbon-capture project.
“This partnership underscores Entergy Louisiana’s commitment to powering progress and driving innovation,” Entergy Louisiana President and CEO Phillip May said. “By supporting this transformational investment, we are not only delivering the energy needed today but also building the infrastructure that will support a brighter, more sustainable future for all of Louisiana. Together, we’re laying the foundation for economic growth that will benefit generations to come.”
According to a Barron’s article, the Meta transaction will allow Entergy to grow its “rate base,” which is the value of assets and operations that sets the baseline for the company’s legal rate of return, without imposing additional costs on existing customers. As a result, Entergy is expected to increase its earnings growth rate from 6%-8% in 2024 to 8%-9% beginning in 2026.
Entergy’s AI-Driven Rally Will Likely Continue in 2025
Rodney Rebello, an analyst at Reaves Asset Management specializing in power stocks, stated that despite a strong rally in 2024, Entergy remains one of his favorite picks. Rebello believes there is more momentum to come.
Other analysts are also becoming more optimistic about the company’s growth prospects. Scotiabank recently boosted its price target on ETR stock, noting that the theme of 2025 will be the strong outlook for electricity demand, which the firm anticipates will be “a rising tide that lifts all boats.” Agrus also echoed its colleague’s move by raising the firm's price target on Entergy to $85 from $65, while maintaining a “Buy” rating. In addition, Morgan Stanley upgraded the stock to “Equal Weight” from “Underweight” in early November, citing an improved outlook for both growth and risk.
Entergy Soars After Q3 Results
On Oct. 31, shares of Entergy surged over 15% after the company reported better-than-expected Q3 adjusted earnings, helped by lower costs and higher service rates which mitigated the impact of unfavorable weather. The company also mentioned that it is considering expanding its nuclear power generation capacity and exploring new nuclear technologies.
Entergy reported strong quarterly adjusted EPS of $2.99, beating Wall Street’s expectations by $0.02. At the same time, Entergy’s total revenue stood at $3.39 billion compared to $3.6 billion in the third quarter of 2023, falling short of analyst estimates by $345 million. The 5.7% year-over-year decline in total revenue was primarily due to the volume/weather variance, retail one-time bill credit, and changes in fuel, rider, and other revenues. Notably, Entergy holds a BBB+ credit rating from S&P Global and a Baa2 rating from Moody's, consistent with other regulated utilities.
“We achieved outstanding results across operational, regulatory, resilience, and growth dimensions,” said CEO Drew Marsh. “These outcomes are the result of strong execution and leveraging a stakeholder engagement model that starts with the customer and ensures value is created for all stakeholders.”
Based on solid year-to-date results, management raised the lower end of the 2024 adjusted EPS guidance range by $0.10 to $7.15 to $7.35 (pre-split). Entergy is also well-positioned for mid-term high growth from the industrial segment, particularly driven by the rapid expansion of data centers. As a result, the company is considering expanding its nuclear power capacity.
During the Q3 earnings conference call, executives said the company is exploring various options to increase its approximately 5,000 MW of nuclear capacity. With that, the company is weighing the possibility of constructing a new reactor in Mississippi and upgrading existing nuclear plants to increase total capacity by up to 300 MW, likely at its Arkansas and Louisiana facilities.
Fueled by anticipated robust growth in the industrial segment, Entergy projects strong EPS growth of 6%-8% in 2025, and even higher at 8%-9% from 2026 to 2028.
ETR Valuation, Dividend, and Analysts’ Estimates
Analysts tracking the company expect a 5.9% year-over-year increase in its adjusted EPS to $3.58 for fiscal 2024, while ETR’s top line is estimated to grow 4.63% year-over-year to $12.71 billion.
Entergy has a consistent dividend history. On Dec. 2, ETR paid a quarterly cash dividend of $1.20 per share to its shareholders, representing a 6% increase compared to the same quarter last year. The company aims for a 6% dividend growth rate during the forecast period, which slightly exceeds that of most peers, offsetting a lower forward yield of only 3.13%. Notably, it has increased its dividend for 10 consecutive years, in line with the sector median.
In terms of valuation, the stock is trading at 21.13 times forward adjusted earnings, well above the sector median of 17.43x and its five-year average of 17.13x. However, Entergy is poised to benefit from robust industrial growth, particularly from data centers, which is why I consider its valuation to be reasonable at current levels.
What Do Analysts Expect for ETR Stock?
Analysts have a consensus rating of “Moderate Buy” on ETR stock. Out of the 18 analysts covering the stock, 10 recommend a “Strong Buy,” one advises a “Moderate Buy,” and seven assign a “Hold” rating. Notably, the stock trades close to its mean price target of $76.62 but has 17.4% upside potential to the Street-high price target of $90.
