This year has been the year of the utility. The once stodgy and slow growth world of companies that produce and sell power has become an investor favorite. Of the 11 sectors tracked by S & P 500, utilities are up 18% as a group, behind only tech and communication services. The utility group has also more than doubled returns this year of its close cousin energy, which is being held back by lower oil prices. Demand for power is seeing some of its biggest increases ever, driven by data centers and A.I. The thirst for electricity is so heavy that companies with any excess power can, without much hyperbole, essentially name their price. It’s contributing a shocking amount to earnings and earnings growth. Investors early to the group have done very well. Of the 31 companies in the S & P Utilities group, four of them – NRG , Constellation Energy , Vistra and American Electric Power – have popped more than 30%. With these gains, is there any upside to any of these stocks left? Analysts say yes, if you know where to look. So we looked, running a stock screener to find utility companies whose stock has the highest percentage of upside relative to analysts’ target price. The fifth-most upside is seen in the aforementioned Constellation Energy Group (CEG). Despite the 60% gain this year, the 19 analysts tracked by FactSet who follow the stock have an average target price of $404.07, implying just under 13% more upside. Constellation hopes to restart the once-mighty Three Mile Island nuclear power plant, now rebranded as the Crane Clean Energy Center, to sell power to Microsoft. One warning: two analysts who cover the Baltimore based utility have target prices below where the stock is now. Next up is the first of two California based companies on this list, Edison International (EIX). Edison is the parent company of Southern California Edison and has been beset by worries about liability from the devastating Eaton fire in Los Angeles. Edison recently launched a compensation program for those impacted but costly litigation likely lies ahead. Still, analysts have an average target of $66.17, implying 16% more gain in shares of EIX . A 91% gain this year isn’t pushing analysts away from still loving NRG. The Princeton, New Jersey turned Houston based company has also seen buyers move into the stock. Analysts covering NRG have an average price target of $210.10, about 20% more than the stock is now. Earnings just blew away estimates and quarterly revenue was about $200 million dollars more than expected. Management also must like the stock, because they just announced a $3 billion dollar stock buyback. Most loved utility stocks Now to the top two utility stocks loved by Wall Street analysts. The gains at Vistra Corp may not be over, as Wall Street thinks it has potentially another 27% left in the stock. At $191 per share as of this writing, the 22 analysts submitting to FactSet have an average price target of $242.35. That’s about 27% more than the current price. The optimism primarily comes from Vistra’s ability to sell power to high bidders, not be completely locked into longer term contracts. BNP Paribas, BMO Capital and Evercore ISI all just raised their target on Vistra. Topping the five, the utility with the most upside seen by analysts is PG & E (PCG) . The northern California utility has an average target price of $21.36, about 29% higher than the stock at this writing. Like Edison International, fires and fire prevention are a key focus for the company, its costumers and community. PG & E is trying to thread the needle on paying for fire mitigation but also making sure electric bills don’t rise any more than they already have. It’s a tightrope, but ratings agency Fitch just upgraded the company’s credit rating. Mizuho says it “continues to see value in PCG shares as they currently trade at among the widest P/E discounts in the group despite strong earnings growth.” The story is bullish but investors take heed: there are number of regulatory decisions on the horizon that are keeping that valuation lower than some of its competitors, and negative outcomes are possible. Speaking of utilities, do not miss CNBC’s coverage of the Edison Electric Institute’s huge annual conference in Florida on Monday. We will interview a number of industry leaders, including PG & E CEO Patti Poppe and Edison International CEO Pedro Pizarro.
Once boring utility stocks are now an investor favorite. These names have the most upside from here
