TD Cowen tapped Vistra (NYSE:VST) and PG&E (NYSE:PCG) as its Top Picks in the U.S. power and utility sector, which it initiated with a “positive bias” in anticipation of a strong need for robust infrastructure in the face of accelerated demand for electricity from data centers, as well as the need to upgrade aging utility assets, meaning that power prices will remain elevated in key deregulated markets for the foreseeable future.
TD Cowen cited a straightforward case for Vistra (NYSE:VST), whose generation assets benefit from locational advantages, particularly around the fast-growing Dallas market, and the bank expects EBITDA to grow by an average 8.4% annually through 2030, driven by tightening power supply/demand, leading to higher prices for both energy and capacity.
Vistra (VST) is expected to benefit from structural tailwinds in the power space as electricity demand continues to grow faster than new generation can come online, and TD Cowen also finds the company’s ERCOT footprint compelling vs. peers given the market dynamics in Texas outpacing the rest of the country as well as lower regulatory and political risk in future years.
California’s chaos has created an attractive entry point, according to TD Cowen, with PG&E (NYSE:PCG), the state’s largest utility, as its other Top Pick – although Buy-rated Edison International (EIX) is not far behind – viewing the recent passage of AB 254 as a step in the right direction, as the legislation further improves financial mitigation for large wildfires while delaying when utilities need to commit more capital; to the extent PG&E can continue to harden the grid against future wildfires, the potential to contribute more capital diminishes, the analysts said.
Also initiated with Buy ratings: American Electric Power (AEP), Duke Energy (DUK), NextEra Energy (NEE), Public Service Enterprise Group (PEG), Southern (SO), Xcel Energy (XEL).
Started at Neutral: American Water Works (AWK), Eversource Energy (ES), MDU Resources (MDU), Pinnacle West (PNW), WEC Energy (WEC).
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