We recently published a list of 7 Most Undervalued Utility Stocks To Buy According To Analysts. In this article, we are going to take a look at where Duke Energy (NYSE:DUK) stands against the other most undervalued utility stocks to buy according to analysts.
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.
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).
Aerial view of a power plant near a lake lit up at night, showing off the company’s expansive electricity generation capabilities.
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.
Overall, DUK ranks 3rd among the most undervalued utility stocks to buy according to analysts. While we acknowledge the potential of DUK as an investment, 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 DUK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.
