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PPL Corporation’s PPL shares are trading at a forward 12-month price/earnings (P/E) ratio of 17.4X, a premium compared with the Zacks Utility - Electric Power industry’s average of 14.79X. PPL’s current valuation is higher than the broader Zacks Utilities sector’s average of 15.45X.
The company reported positive earnings surprise in the last reporting quarter and it is benefiting from increased data center demand, particularly in Pennsylvania and Kentucky, as these facilities require substantial electricity.
Some other utilities like NextEra Energy NEE and Dominion Energy D are investing heavily to generate more clean electricity and gaining from the rising demand from the data centers. NextEra Energy and Dominion Energy are currently trading at P/E F12M of 20.56X and 16.52X, respectively, a premium compared with their industry.
PPL Corporation’s shares have gained 1.8% in the past six months compared with the industry’s rise of 9.5%. The company also underperformed the Zacks Utilities sector in the same time frame.
Should investors view the recent softness in PPL’s share price as a potential buying opportunity? Let’s take a closer look at the key factors that can help determine whether current levels present an attractive entry point for adding PPL to an investment portfolio.
PPL Corporation’s capital spending strategy focuses on strengthening its generation, transmission and distribution network. Continued infrastructure upgrades have already improved reliability and reduced customer outages. Looking ahead, the company plans to invest about $20 billion from 2025 through 2028 to further enhance its operations and ensure the consistent delivery of safe, dependable and high-quality service to customers.
PPL is also seeing rising load growth across its service territories, largely fueled by increasing data center demand. In Pennsylvania, potential data center load in advanced development stages has climbed to nearly 20.5 gigawatts (“GW”) from 14.4 GW in the second quarter, representing an estimated $1 billion transmission investment opportunity. In Kentucky, data center requests have grown to 9.7 GW from 8.5 GW in the second quarter. With infrastructure already in place, PPL is well positioned to meet this growing demand and benefit from the resulting expansion.
More than 60% of PPL’s capital investment plan is subject to “contemporaneous recovery,” which reduces the impact of regulatory lag on earnings for investments. The recovery of capital expenditures quickly allows the company to fund long-term projects easily.
Through multiple rate cuts, the U.S. Federal Reserve has reduced interest rates by 175 basis points, bringing these down from the 5.25-5.50% range to 3.50-3.75%. Further rate reductions are expected in 2026. Lower interest rates directly reduce the cost of new or refinanced debt for PPL, which can enhance profit margins and support stronger overall financial performance.
PPL Corporation will also benefit from its ongoing cost reduction initiatives. The company is working to reduce its operating and maintenance (O&M) costs by at least $150 million by 2025 and $175 million by 2026 from the 2021 baseline.
PPL’s Pennsylvania Regulated segment operates in a competitive environment for transmission projects and must comply with Federal Energy Regulatory Commission rules governing project development and cost structures. Intensifying competition in the transmission space is putting pressure on the company to control and reduce costs in order to remain competitive.
PPL expects its 2025 earnings estimate in the range of $1.78-$1.84 per share. The Zacks Consensus Estimate for PPL’s 2025 and 2026 earnings per share indicates a year-over-year increase of 7.1% and 8.07%, respectively.
The Zacks Consensus Estimate for NextEra Energy’s 2025 and 2026 earnings per share indicates a year-over-year increase of 7.29% and 7.84%, respectively.
The company has been distributing dividends to its shareholders for a long time and plans to increase dividends annually in the range of 6-8% at least through 2028, subject to the board’s approval. The company’s current quarterly dividend rate is 27.25 cents, resulting in an annual dividend of $1.09 per share. The current dividend yield is 3.21%, which is better than the industry’s yield of 3.11%.
PPL has raised dividends for its shareholders four times in the past five years. Check PPL’s dividend history here.
The current dividend yield of Dominion Energy is 4.5%, which is better than the industry.
Return on Equity (“ROE”) shows how effectively a company’s management is utilizing investors’ money to generate returns. ROE of PPL is a tad lower than its industry. The current ROE of the company is 9.08% compared with its industry’s 9.95%.
PPL is well positioned to capitalize on the increasing demand for clean energy across its service territories and investing to expand operations accordingly. The company’s ability to recover more than 60% of its capital expenditures in real time enhances financial flexibility and supports the efficient funding of long-term projects. The interest rate cut will be beneficial for the company and reduce the cost of its long-term projects.
PPL continues to create shareholder value through consistent dividend payments, while improving earnings estimates further strengthen its investment appeal.
Yet, PPL Corporation’s shares currently trade at a premium and its returns remain slightly below the industry average. So, the new investors should wait for a better entry point to add this Zacks Rank #3 (Hold) stock to their portfolio.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
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