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.