In this article, we will discuss the 10 Most Undervalued Utility Stocks to Invest in Now.
EY believes that utilities are required to balance growing energy demands, decarbonization goals and customer satisfaction while, at the same time, navigating regulatory and financial challenges. Therefore, creative funding and strategic partnerships remain critical to financing ambitious energy projects amid elevated capital costs. Modernization of infrastructure can lead to a sustainable and resilient energy future, supporting providers and consumers.
Favourable Outlook for US Utilities Sector
As per Morningstar, one of the critical shifts in the US utilities sector is the strong growth of renewable energy sources. Over the past decade, declining costs for wind and solar projects and state-mandated renewable energy targets resulted in strong investments in clean energy. Utilities are required to innovate and invest in smart-grid technologies and battery storage in a bid to accommodate the growing influx of renewable energy. Such advances are expected to ensure grid reliability and efficiency with an increase in renewable energy’s share of the generation mix.
One of the critical components of the moats in the utilities sector is the regulatory framework in which they operate, says Morningstar. The requirement for regulatory approval and oversight to set customer rates tends to limit competition, but it also restricts utilities’ earnings. The regulatory environment ensures their ability to operate with predictable cash flows. The next aspect is the requirement for large capital investment. Building and maintaining the infrastructure required for electricity, gas, and water distribution requires significant capital, with regulators limiting the returns utilities can generate on such investments. Therefore, rate regulation and the requirement of reliable and consistent energy supply result in stable demand and predictable revenues, attracting investors who want low-risk and steady returns.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
Electricity Demand to Revive
Historically, the US electricity demand has reflected the economic growth, averaging ~2% annually, says Morningstar. That being said, since 2000, this relationship continued to weaken because of improvements in energy efficiency and lower industrial electricity use. As a result, electricity demand has remained flat since 2007. However, the firm believes that revival seems to be on the cards. Several factors are expected to fuel renewed growth in electricity demand.
These include the proliferation of EVs, diminishing returns on energy-efficiency advancements, and surge of data centers because of advancements in AI. The utility companies are required to prepare themselves for higher demand by making investments in grid capacity and reliability. They can also make alliances with EV manufacturers and charging network providers so that they can capitalize on the dynamic EV market, added Morningstar.
Amidst this optimism, we will now have a look at 10 Most Undervalued Utility Stocks to Invest in Now.
An aerial view of the energy producing facility, highlighting its potential of providing utilities to the public.
Our Methodology
To list the 10 Most Undervalued Utility Stocks to Invest in Now, we used a screener to shortlist companies catering to the broader utilities sector. Next, we filtered out the stocks that trade at a forward P/E of less than ~20x. We also mentioned hedge fund sentiments around each stock, as of Q4 2024. Finally, the stocks were arranged in ascending order of their hedge fund sentiments.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
10 Most Undervalued Utility Stocks to Invest in Now
10. Sempra (NYSE:SRE)
Forward P/E as on March 4: ~14.4x
Number of Hedge Fund Holders: 34
Sempra (NYSE:SRE) operates as an energy infrastructure company. BMO Capital analyst James Thalacker has maintained a bullish stance on the company’s stock, providing a “Buy” rating on February 26. The analyst’s rating is backed by a combination of factors focusing on the company’s potential for growth despite challenges. While the company’s decision to reduce its 2025 guidance was unexpected, it has placed a new foundation for a sustainable long-term growth rate. The adjustments demonstrate a strategic repositioning, mainly in Sempra (NYSE:SRE)’s California and Texas operations, targeting to enhance regulatory strategies and improve operating cash flow.
The analyst further added that there is a potential for the company to see an increased sustained growth outlook. Sempra (NYSE:SRE)’s high-quality infrastructure in key North American markets and strong cash flow from LNG development are projected to fuel EPS growth. Sempra (NYSE:SRE) has announced a record 5-year capital plan of $56 billion.
More than half of the planned capital expenditures remain inclined towards Texas, where robust new investments are required to expand and modernize the energy grid. This is consistent with Sempra (NYSE:SRE)’s 2030 aspirations of producing more than 50% of its earnings from the State of Texas. Sempra Texas is executing on a significant growth campaign in the country’s evolving energy market.
9. Xcel Energy Inc. (NASDAQ:XEL)
Forward P/E as on March 4: ~18.3x
Number of Hedge Fund Holders: 37
Xcel Energy Inc. (NASDAQ:XEL) is engaged in the generation, purchasing, transmission, distribution, and sale of electricity. Evercore ISI upped the company’s price target to $74 from $70, keeping an “Outperform” rating. The firm has an optimistic outlook for the broader power and utilities group as it believes that improvement in fundamentals and a positive valuation backdrop are expected to support outperformance through H1 2025. As per the analyst, factors including moderation in inflation, potential future interest rate cuts, and elevated electricity demand can act as tailwinds for Xcel Energy Inc. (NASDAQ:XEL).
Evercore expects increased investment in utility infrastructure, mainly because of data centers, with more deals and announcements expected in 2025. Elsewhere, Neil Kalton from Wells Fargo maintained a “Buy” rating on the company’s stock with a price objective of $75.00. The rating is backed by several factors that demonstrate Xcel Energy Inc. (NASDAQ:XEL)’s growth potential and value.
Despite a marginal underperformance in 2024, its management has reiterated optimism in achieving the midpoint of 2025 earnings guidance, hinting at a robust future earnings trajectory. Notably, Xcel Energy Inc. (NASDAQ:XEL) reaffirmed 2025 EPS guidance of $3.75 – $3.85 per share. Furthermore, the company identified numerous capital expenditure opportunities that can enhance their generation resources and result in long-term growth. Apart from these factors, the analyst also highlighted that manageable liabilities from prior wildfire incidents and mitigation efforts focused on reducing future wildfire risks continue to support the positive outlook.
8. Dominion Energy, Inc. (NYSE:D)
Forward P/E as on March 4: ~16x
Number of Hedge Fund Holders: 39
Dominion Energy, Inc. (NYSE:D) is engaged in the provision of regulated electricity and natural gas services. Guggenheim upped the price target on the company’s shares to $69 from $66, keeping a “Buy” rating. As per the firm, the clarity on tariffs is expected to lift some sentiments over the near term, which can be trailed by incremental momentum related to project milestones through H2. Elsewhere, analyst James Thalacker from BMO Capital reiterated a “Hold” rating on Dominion Energy, Inc. (NYSE:D)’s stock, keeping the price objective of $59.00. As per Thalacker, the company’s recent full-year EPS was slightly above consensus estimates, and they have narrowed the future guidance with a favourable long-term growth outlook.
In FY 2024, Dominion Energy, Inc. (NYSE:D) posted GAAP net income of $2.44 per share and operating earnings (non-GAAP) of $2.77 per share. It has narrowed 2025 operating EPS range to $3.28 – $3.52 per share, while preserving the original midpoint of $3.40 per share. Dominion Energy, Inc. (NYSE:D)’s capex plans have expanded significantly, with a strong portion focused towards essential areas including transmission and distribution. While higher capital investment shows a positive indication on the rate base growth, the analyst believes it also needs careful implementation to realize expected returns. Overall, Dominion Energy, Inc. (NYSE:D) remains focused on upgrading the electrical grid infrastructure as it continues to invest significantly in new transmission lines, energy storage solutions and substations in a bid to cater to elevated electricity demand.
7. Consolidated Edison, Inc. (NYSE:ED)
Forward P/E as on March 4: ~18.2x
Number of Hedge Fund Holders: 44
Consolidated Edison, Inc. (NYSE:ED) is engaged in the regulated electric, gas, and steam delivery businesses. The company remains optimistic about growth and remains well-placed to continue to meet demand to power the electrification of buildings and transportation across its service territory with higher capital investments in grid infrastructure. This was supported by the big wins, including breaking ground and progressing construction of critical substations and advancing a pair of new transmission lines under its Reliable Clean City program. Consolidated Edison, Inc. (NYSE:ED) expects demand for electrification to grow steadily in 2025, courtesy of an increase in new construction downstate, together with requirements for clean heat in new commercial and residential buildings.
For the year of 2025, the company projects its adjusted EPS to be between $5.50 – $5.70 per share. Consolidated Edison, Inc. (NYSE:ED) plans to address its capital requirements for 2025 through 2029 with the help of internally-generated funds and the issuance of long-term debt and common equity. Given the company’s strong presence, it remains well-placed to benefit due to the mandates for renewable power, infrastructure upgrades to help higher urban energy needs, and electrification trends. In 2025 and 2026, Consolidated Edison, Inc. (NYSE:ED) anticipates to make capital investments of $5,122 million and $8,067 million, respectively.
6. American Electric Power Company, Inc. (NASDAQ:AEP)
Forward P/E as on March 4: ~17.7x
Number of Hedge Fund Holders: 47
American Electric Power Company, Inc. (NASDAQ:AEP) is engaged in the generation, transmission, and distribution of electricity for sale to retail and wholesale customers. The company’s commitment to decarbonizing its generation fleet remains in line with the broader industry trends and regulatory pressures to reduce the carbon emissions. This strategic emphasis is expected to yield numerous benefits for the company. With states and the federal government pushing for cleaner energy, American Electric Power Company, Inc. (NASDAQ:AEP)’s proactive approach to decarbonization is expected to lead to more favorable regulatory treatment and support for investment plans.
The company expects 8%-9% annual total retail load growth from 2025-2027 and ultimately anticipates serving over 20 gigawatts of new load by the decade’s end. American Electric Power Company, Inc. (NASDAQ:AEP)’s $54 billion, 5-year capital plan continues to support this opportunity as it builds infrastructure catering to the needs of its customers, communities and the states. Additionally, the company is evaluating $10 billion of potential incremental investment throughout its service territory and regional transmission grids. Therefore, the growth of the utilities sector, driven by grid modernization and higher energy demand, is anticipated to fuel growth for American Electric Power Company, Inc. (NASDAQ:AEP) as it invests in renewable projects and transmission infrastructure.
5. Exelon Corporation (NASDAQ:EXC)
Forward P/E as on March 4: ~16.5x
Number of Hedge Fund Holders: 47
Exelon Corporation (NASDAQ:EXC) is a utility services holding company, which is engaged in the energy distribution and transmission businesses. Ross Fowler, an analyst from Bank of America Securities, maintained a “Hold” rating on the company’s stock, with the price target of $41.00. The rating is backed by several factors that demonstrate the company’s performance and outlook. Exelon Corporation (NASDAQ:EXC)’s Q4 and full-year 2024 earnings surpassed the consensus expectations and reached the top end of the guidance range. Notably, the company reported GAAP net income of $0.64 per share and adjusted (non-GAAP) operating earnings of $0.64 per share for Q4 2024, resulting in full-year GAAP net income of $2.45 per share and adjusted (non-GAAP) operating earnings of $2.50 per share.
Exelon Corporation (NASDAQ:EXC) plans to invest $38 billion over the next 4 years, reflecting an increase of 10% as compared to the prior plan to help customer needs and grid reliability, leading to an expected rate base growth of 7.4% and operating EPS compounded annual growth of 5%-7% from 2024 to 2028. These are the positive indicators of its future growth potential, says Fowler. Elsewhere, Scotiabank upped Exelon Corporation (NASDAQ:EXC)’s price objective to $44 from $42, keeping a ”Sector Perform” rating.
4. Duke Energy Corporation (NYSE:DUK)
Forward P/E as on March 4: ~18.4x
Number of Hedge Fund Holders: 62
Duke Energy Corporation (NYSE:DUK) operates as an energy company. James Thalacker from BMO Capital maintained a “Buy” rating on the company’s stock with a price objective of $123.00. The analyst’s rating is backed by factors highlighting current challenges and future potential. Despite uncertainties due to a softer outlook for 2025, higher operational and maintenance costs, and storm-related contingencies, the analyst has recognized long-term growth prospects beyond 2027. The analyst has lauded Duke Energy Corporation (NYSE:DUK)’s manageable equity financing requirements and financial flexibility, which are strengthened by a robust regulated asset base and stable financial forecasts.
Duke Energy Corporation (NYSE:DUK)’s strategic emphasis on renewable development, execution of Clean Energy Plan, and the benefits due to regulatory frameworks in North Carolina continue to support the analyst’s rating. Such factors, together with a derisked regulatory calendar and projected demand growth, continue to paint a favourable outlook for the company. Elsewhere, Jefferies upped Duke Energy Corporation (NYSE:DUK)’s price objective to $132 from $129, keeping a “Buy” rating. The broad-based growth in the utilities sector, thanks to the push for cleaner energy and higher electricity demand, is anticipated to support the company as it invests in renewable energy projects, grid modernization and infrastructure upgrades.
3. PG&E Corporation (NYSE:PCG)
Forward P/E as on March 4: ~10.8x
Number of Hedge Fund Holders: 74
PG&E Corporation (NYSE:PCG) is engaged in the sale and delivery of electricity and natural gas to customers. The company has been working to serve ~5.5 gigawatts (GW) of new data center energy demand over the next decade, and 1.4 GW remains in final design and is expected to come online between 2026 and 2030. Just to provide a brief perspective, 1 GW is enough power to serve the demand of ~750,000 homes at once. PG&E Corporation (NYSE:PCG) further added that new data center load projected to come online over the upcoming 5 years consists of 740 megawatts that the company evaluated through its original cluster study in 2024.
Notably, new energy demand from data centers enables the company to utilize more of its existing power infrastructure. PG&E Corporation (NYSE:PCG) has also signed a $15 billion loan guarantee agreement with the U.S. Department of Energy’s Loan Programs Office in a bid to fund the grid modernization projects and potentially save customers up to $1 billion on a NPV basis through lower-cost financing. PG&E Corporation (NYSE:PCG) reaffirmed 2025 GAAP earnings guidance in the range of $1.30 – $1.36 per share.
Third Point Management, a New York-based investment advisor, released its Q4 2024 investor letter. Here is what the fund said:
“We are devastated by the recent events in Southern California. Several of our family members and team members call Los Angeles home, and our hearts are with all impacted by the fires.
While PG&E Corporation (NYSE:PCG) does not operate in this region, there is press speculation that one of the fires, Eaton, may have been related to transmission equipment owned by SoCal Edison (SCE), another investor-owned utility (parent company Edison International.) Edison has stated publicly that they do not believe their equipment was involved. The investigation is ongoing, and we believe it is premature to make conclusions about the origin of the fire…
If the Eaton fire ignition was related to SCE equipment, the California legal standard of “inverse condemnation” exposes SCE to resultant property damage liabilities. After PG&E’s bankruptcy in 2019, California passed a bill called AB1054 which protects the state’s investor-owned utilities (Edison, PG&E and Sempra) from these liabilities as long as they adhere to a rigorous safety standard. This includes a comprehensive wildfire mitigation plan approved annually by the government and a commitment to spend billions to harden the grid; for example, PG&E is spending a whopping $18 billion on wildfire mitigation from 2023 -2025. In exchange, AB1054 includes several protections, such as a legal prudency standard that entitles the utility to cost recovery via multiple avenues in the event of a catastrophic fire and a $21 billion insurance fund to cover incurred liabilities. SCE has an active safety certificate and thus should benefit from the protections under AB 1054, just as PG&E would in case of a future fire. Regulator-approved cost recovery is a routine proceeding for utilities in areas prone to severe climate events (hurricanes, tornadoes, earthquakes, etc.) in acknowledgement of the fact that it is not feasible to remove all risk from overhead grid infrastructure. PCG has been the preeminent advocate in California for undergrounding, which we believe is the only way to permanently eliminate wildfire risk from grid assets…” (Click here to read the full text)
2. NextEra Energy, Inc. (NYSE:NEE)
Forward P/E as on March 4: ~19.4x
Number of Hedge Fund Holders: 84
NextEra Energy, Inc. (NYSE:NEE) is engaged in generating, transmitting, distributing, and selling electric power to retail and wholesale customers. Analyst David Arcaro from Morgan Stanley gave a “Buy” rating on the company’s stock and raised the price objective to $94.00 from $93.00. The rating was backed by several positive factors, highlighting a strong outlook for NextEra Energy, Inc. (NYSE:NEE). The company is expected to witness a marginal increase in EPS, courtesy of a strong renewables backlog and potential new contracts, mainly in the area of renewable energy projects.
The analyst has also highlighted the potential upside opportunities including the possible restart of the Duane Arnold nuclear plant, multi-year renewable contracts, as well as new natural gas power plant projects. Amidst challenges including policy changes and equipment supply risks, the broader financial outlook remains stable for NextEra Energy, Inc. (NYSE:NEE). Its healthy operational performance and competitive electric rates strengthen the analyst’s Buy rating. Overall, the growth in the utilities sector, due to higher electricity demand and a pivot to renewable energy, is expected to support NextEra Energy, Inc. (NYSE:NEE) as it enhances its clean energy portfolio and investments towards infrastructure.
Madison Investments, an investment advisor, released its Q3 2024 investor letter. Here is what the fund said:
“The top contributors in the quarter were NextEra Energy, Inc. (NYSE:NEE), Oracle Corporation, Progressive Corporation, Equifax Inc., and United Healthcare. NextEra has continued to perform well given its strong position in the renewable energy space, increasing demand for power, its transmission capabilities, as well as a tailwind from lower interest rates.”
1. Vistra Corp. (NYSE:VST)
Forward P/E as on March 4: ~18.2x
Number of Hedge Fund Holders: 120
Vistra Corp. (NYSE:VST) operates as an integrated retail electricity and power generation company. JPMorgan believes the company’s shares can be bought after the post-earnings selloff. The stock saw a strong decline due to the absence of a data center deal or forward guidance uplift. However, the fears are now overblown, says the JPMorgan analyst. Notably, the company’s stock has seen a decline of ~27.1% in just one month. As per the firm, Vistra Corp. (NYSE:VST) is in discussions with hyperscalers and data center developers. Also, BofA upgraded the company’s stock to “Buy” from “Neutral.”
As per the firm, the base business of baseload generation and competitive retail remains well-placed to see the benefits from tightening markets, enhancing demand and retail growth, irrespective of datacenter deals. The company has been growing its fleet of zero-carbon resources, advancing interests via cost-effective, strategic investments. During Q4 2024, Vistra Corp. (NYSE:VST) advanced its efforts in solar, energy storage, and nuclear by executing its renewable development pipeline, bringing online the first 2 projects that form part of its Illinois Coal to Solar & Energy Storage Initiative at Baldwin (70 MW) and Coffeen (46 MW).
Vistra Corp. (NYSE:VST) grew its ownership interest in nuclear by closing on an agreement for the acquisition of an entire 15% minority interest in its Vistra Vision subsidiary, making Vistra the sole owner of the highly valuable, carbon-free assets. Meridian Funds, managed by ArrowMark Partners, released its Q3 2024 investor letter. Here is what the fund said:
“Vistra Corp. (NYSE:VST) is an integrated retail electricity and power generation company, primarily serving Texas and the Midwest. We own Vistra because we expect power markets to continue tightening as baseload supply declines, coupled with rising demand from data centers, electric vehicles, and manufacturing reshoring. These factors create a favorable pricing environment for Vistra’s generation fleet, especially its nuclear and gas assets. The stock performed well during the period for three key reasons: tightening energy markets and strengthened pricing in forward-year energy contracts, the continuation of Vistra’s aggressive share repurchase program, and the company’s announced plan to acquire the remaining interest in Vistra Vision at an attractive valuation. Additionally, the company reaffirmed its 2024 guidance, indicating that results are trending toward the upper end of the previously projected range. We took advantage of the stock’s strength this quarter to trim our position.”
While we acknowledge the potential of VST as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than VST but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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