According to Research and Markets, the global utilities market size was valued at $6.89 trillion in 2024 and is expected to reach $8.83 trillion by 2028, growing at a compound annual growth rate (CAGR) of 6.4%. The utilities market is expected to experience growth driven by a combination of factors including global population growth, accelerated economic expansion, increased investments in renewable energy, and a rise in utility mergers and acquisitions. Key trends include a focus on investing in Power Purchase Agreements (PPAs), allocating funds toward battery storage for solar energy, and investing in technologies such as smart grids and smart meters.
Utilities: A Stable and Secure Investment
Keith Meister, Managing Partner and Chief Investment Officer of Corvex Management, recently shared his thoughts on the utility sector. Meister emphasized that utilities are good, well-regulated businesses that have historically experienced flat electricity load growth in the country from 2013 to 2023. However, with the advent of new technologies and regulations such as the Inflation Reduction Act (I.R.A.) and Artificial Intelligence (A.I.), the projected growth rate for the sector is now at 3%. This growth is expected to be driven by the increasing demand for electricity, particularly in the context of the rising adoption of renewable energy sources and the growing need for power to support technological advancements.
Meister believes that the U.S. has incentivized great capital markets and investment in the sector, making utilities a good investment for the current cycle. According to Meister, his firm has been actively buying utilities at a 1 to 1.1 rate base, 12 times earnings, due to their attractive investment prospects. He noted that just a couple of years ago, utilities were trading at 20 times the market, but now they are at a much more reasonable two times the market. This decrease in valuation makes utilities an attractive investment opportunity, particularly when considering their guaranteed income and good dividends.
Meister highlighted the sector’s attractive features, including guaranteed income and good dividends, which make it an attractive investment opportunity. Investors don’t need to worry about multiple expansions to get 10% growth on these stocks, and any additional growth or earnings expansion would be a bonus. This makes utilities a relatively stable and secure investment option, particularly in a market where growth and returns are increasingly uncertain.
The escalating demand for electricity is a key driver of the growth of the utilities market, with that in context, let’s take a look at the 7 most undervalued utility stocks to buy according to analysts.
A row of utility poles and power lines, showing the reach of the electric utility operations.
Our Methodology
To compile our list of the 7 most undervalued utility stocks to buy according to analysts, we used the Finviz and Yahoo stock screeners to find the 30 largest utility companies by market cap that are trading at a forward P/E ratio of under 20 as of October 7. We then narrowed our choices to 7 stocks that analysts saw the most upside to, as of October 7. We also mentioned the hedge fund sentiment around each stock, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The stocks are sorted in ascending order of their upside potential.
Why do we care about what hedge funds do? 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 smallcap and largecap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
7 Most Undervalued Utility Stocks To Buy According To Analysts
7. Evergy (NASDAQ:EVRG)
Upside Potential: 5.72%
Forward P/E Ratio as of October 7: 15.72
Number of Hedge Fund Investors: 36
Evergy (NASDAQ:EVRG) is a utility company formed in 2018, by the merger of Great Plains Energy and Westar Energy. Evergy (NASDAQ:EVRG) serves 1.7 million customers in Kansas and Missouri.
In Q2, Evergy’s (NASDAQ:EVRG) revenue increased by 6.9% year-over-year to $1.4 billion. Adjusted EPS increased 11.1% year over year to $0.90. Higher retail rates in Kansas, weather-normalized demand growth, and greater transmission margins were all contributors to this growth. The company’s non-GAAP profit margin expanded by almost 80 basis points to 14.5%, outpacing operating revenue growth. Management reaffirmed its guidance of 4% to 6% annual adjusted EPS growth through 2026, supported by the company’s economic development projects, including the Panasonic EV manufacturing plant, which is expected to reach its full run rate in 2026.
Evergy’s (NASDAQ:EVRG) financials are also strong, with a debt-to-capital ratio of 50.3%. The company’s dividend yield of 4.3% is also attractive. Evergy’s (NASDAQ:EVRG) stock is trading at 15.72 times this year’s earnings estimate, a 12.55% discount to its sector median of 17.97.
The company is anticipated to experience 8.13% earnings growth this year. Industry analysts are bullish on the company’s stock price and have a consensus Buy rating at a target price of $63.39, which implies an almost 5.72% increase from its current levels.
6. Exelon (NASDAQ:EXC)
Upside Potential: 6.42%
Forward P/E Ratio as of October 7: 16.43
Number of Hedge Fund Investors: 37
Exelon (NASDAQ:EXC) is a leading energy provider based in Chicago that operates a diverse portfolio of nuclear, solar, wind, and natural gas generation facilities. company. Exelon (NASDAQ:EXC) is engaged in the energy distribution and transmission businesses through a number of companies including Commonwealth Edison Company (PECO), Baltimore Gas and Electric Company (BGE), Potomac Electric Power Company (Pepco), and Atlantic City Electric Company (ACE).
In Q2, Exelon’s (NASDAQ:EXC) revenue increased 11.2% to $5.36 billion compared to the same quarter in the previous year. Additionally, the company received a positive regulatory update, with the Maryland Public Service Commission (MDPSC) approving an incremental increase in Pepco’s electric distribution rates of $45 million for the 12-month period ending March 31, 2025, reflecting a return on equity of 9.5%.
Exelon’s (NASDAQ:EXC) Q2 earnings, exceeded expectations with a 17.5% beat. The company’s earnings per share of 47 cents increased from the year-ago level of 41 cents. On a GAAP basis, earnings were 45 cents per share, up from 34 cents in the same quarter last year.
Exelon’s (NASDAQ:EXC) P/E ratio of 16.43, indicates a 8.61% discount compared to the sector median of 17.97. The company’s dividend yield is attractive, and the company has consistently had positive operating free cash flow suggests that the company would be able to raise the dividend even further, making it a strong buy for income investors. The company’s earnings are projected to increase by almost 3% in the current year. However, industry analysts are bullish on the company’s stock price and have a consensus Buy rating at a target price of $42.24, which implies a 6.42% increase from its current level.
Exelon (NASDAQ:EXC) is a reasonably priced utility for income investors, with a strong track record of dividend growth and a yield of 3.77%. The company’s diverse holdings, positive cash flow, and consistent dividend growth make it a strong buy for income investors in the utility sector. 37 hedge funds have a combined stake of $465.12 million in the company as of the second quarter. As of June 30, Soroban Capital Partners holds the largest stake in the company, with $74.69 million worth of shares, according to Insider Monkey’s database.
5. Xcel Energy (NASDAQ:XEL)
Upside Potential: 6.60%
Forward P/E Ratio as of October 7: 17.68
Number of Hedge Fund Investors: 29
Xcel Energy (NASDAQ:XEL) is a major U.S. utility company providing electricity and natural gas services across several states, including Minnesota, Colorado, and Texas. Xcel Energy (NASDAQ:XEL) is recognized as a leader in renewable energy, particularly wind and solar power.
Xcel Energy (NASDAQ:XEL) is a dividend growth stock that is currently undervalued, with a strong growth outlook, a stable balance sheet, and a secure dividend. The company’s ongoing diluted EPS is projected to grow by 6% in 2024, with further growth anticipated through 2026. Xcel Energy (NASDAQ:XEL) is expected to generate a 9.1% compound annual growth rate in data center sales from 2024 to 2026.
The company’s balance sheet is investment-grade, with a debt-to-capital ratio in the high 50% range, which is around the 60% debt-to-capital ratio that rating agencies desire from the industry. Xcel Energy’s (NASDAQ:XEL) valuation is attractive, with a current-year P/E ratio of 17.68. The company’s dividend is secure, with a low payout ratio and a 21-year growth streak. The dividend is expected to grow at a rate of 5.9% annually, which is above the sector median forecast of 5.3%.
Analysts forecast the company to report 4.6% earnings growth for this year and have a consensus on the stock’s Buy rating, with an average target price of $67.23 that suggests a 6.60% upside potential from its current levels.
4. Sempra (NYSE:SRE)
Upside Potential: 8.10%
Forward P/E Ratio as of October 7: 17.03
Number of Hedge Fund Investors: 29
Sempra (NYSE:SRE) is a global energy infrastructure company based in California, the company has a diverse portfolio spanning natural gas, electricity, and renewable energy. Sempra (NYSE:SRE) provides services to 40 million customers in both North America and Latin America. The company also has significant investments in liquefied natural gas (LNG) and energy storage facilities.
Sempra (NYSE:SRE) is poised to benefit from the Dallas Fort Worth area being the largest growing metro in the US, with rapid population growth and economic development expected to drive a 40% higher electrical load by 2030. The company has reiterated its 6% to 8% annual long-term adjusted EPS growth rate, with the FAST Graphs analyst consensus expecting 6.9% adjusted EPS growth to $5.13 in 2025 and 7% growth in adjusted EPS to $5.49 in 2026. The company’s financial condition is stable, with an interest coverage ratio of 2.7 and a 46.4% debt-to-capital ratio, which is better than the 60% debt-to-capital ratio that rating agencies desire from the industry. Sempra (NYSE:SRE) possesses a BBB+ credit rating from S&P on a stable outlook.
Sempra’s (NYSE:SRE) valuation is attractive, with a current-year P/E ratio of 17.03, a 4.05% discount to the sector median of 17.75. The company’s dividend is secure and rising, with a 3% forward dividend yield and a payout ratio of around the low 50% range, providing a significant margin of safety. Analysts forecast Sempra’s (NYSE:SRE) earnings will increase by 3.20% this year and expect the company to deliver at least 5% to 6% annual dividend growth in the years ahead. Industry analysts have reached a consensus on the stock’s Buy rating, with an average target price of $88.50 that suggests an 8.10% upside potential from its current levels.
3. Duke Energy (NYSE:DUK)
Upside Potential: 8.90%
Forward P/E Ratio as of October 7: 19.08
Number of Hedge Fund Investors: 37
Duke Energy (NYSE:DUK) is a major electric utility holding company based in the United States. The company serves 8.2 million customers and collectively owns 50,000 megawatts of energy capacity. Duke Energy’s (NYSE:DUK) natural gas unit services 1.6 million customers in North Carolina, South Carolina, Tennessee, Ohio and Kentucky.
Duke Energy (NYSE:DUK) is rapidly expanding its renewable portfolio, with a goal of deploying 30 GW of regulated renewable power generation by 2035. The company’s solar business is the largest component of its renewable energy mix. The company has over 6,000 MW of renewable energy capacity through more than 260 power purchase agreements and owns 430 MW of renewable generation, including 13 solar generation plants that generate up to 153 MW. Additionally, Duke Energy (NYSE:DUK) is investing heavily in battery energy storage systems.
Duke Energy’s (NYSE:DUK) valuation is competitive, the stock is trading 19.08 times this year’s earnings estimate. The company is expected to achieve 7.27% earnings growth this year. With a consensus Buy rating from industry analysts, the stock has a target price of $120.98, which represents an 8.90% upside potential from its current level.
Duke Energy’s (NYSE:DUK) geographic diversity, favorable regulatory oversight, and reasonable growth make it an attractive investment opportunity. As of the second quarter, 37 hedge funds have invested a total of $774.16 million in the company. According to Insider Monkey, GQG Partners holds the largest stake in the company, with $260.56 million worth of shares as of June 30.
2. PG&E Corporation (NYSE:PCG)
Upside Potential: 14.33%
Forward P/E Ratio as of October 7: 14.51
Number of Hedge Fund Investors: 46
PG&E Corporation (NYSE:PCG) is a utility company based in California that provides natural gas and electricity to millions of customers. The company plays a crucial role in California’s energy landscape and is investing in renewable energy sources, electric vehicle infrastructure, and wildfire safety measures to enhance service reliability and environmental responsibility.
In Q2 2024, PG&E Corporation (NYSE:PCG) reported a 13.16% year-over-year revenue growth, raising its earnings guidance by 10% into 2025 and 9% annually through 2028. The company’s net profit grew 28.08% to $520 million from $406 million compared to the same quarter in the previous year.
The California Public Utilities Commission (CPUC) has approved additional CapEx funding requirements for PG&E Corporation (NYSE:PCG), allowing the company to raise billing rates. This will support the company’s infrastructural plans and increased demand for electric vehicles (EVs), artificial intelligence (AI), and data centers. The CPUC’s approval of net billing tariffs and higher customer payments will also support the company’s growth prospects.
PG&E Corporation’s (NYSE:PCG) stock is slightly undervalued with a forward P/E ratio of 14.51, a 19.29% discount compared to the sector median of 17.97. The company’s earnings are projected to increase by almost 10% in the current year. Industry analysts have reached a consensus on the stock’s Buy rating, with an average target price of $22.13 that suggests a 14.33% upside potential from its current levels.
1. The AES Corporation (NYSE:AES)
Upside Potential: 17.73%
Forward P/E Ratio as of October 7: 9.89
Number of Hedge Fund Investors: 46
The AES Corporation (NYSE:AES) is a utility company that provides affordable and sustainable energy solutions. The company has operations in 15 countries around the world and focuses on renewable energy generation, including solar and wind, while also delivering reliable electricity through conventional energy sources. The company is committed to achieving net zero carbon emissions by 2050 and has made significant strides in expanding its clean energy portfolio.
The AES Corporation’s (NYSE:AES) business model is well-positioned to benefit from the growing global demand for clean energy. The company is rapidly expanding its renewable portfolio, with a goal of reaching 30GW of capacity by 2027, which will support its contracts with major corporate clients such as Microsoft and Google. The AES Corporation’s (NYSE:AES) diverse revenue streams, including electricity generation, utility services, and energy infrastructure, will help the company weather cyclical market conditions. The company’s aggressive shift towards renewables is expected to drive long-term growth, and its growing project backlog is a testament to its ability to execute its growth strategy.
Despite being a major utility company, The AES Corporation (NYSE:AES) is trading at 9.89 times this year’s earnings estimate, a 44.97% discount to its sector median of 17.97. The company’s dividend yield of 3.55% is also attractive, and its investment-grade credit rating is stable. Analysts forecast the company’s earnings will increase by 8.69% this year and are bullish on the company’s stock price, with a consensus Buy rating at a target price of $22.59, which implies a 17.73% increase from its current level.
While we acknowledge the potential of The AES Corporation (NYSE:AES) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AES but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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