The Zacks Utility – Electric Power industry players generate and supply electricity to millions of customers across the United States. The utilities have been transitioning toward clean sources of fuel and focusing on carbon emissions reduction. The support from the government is aiding the industry’s transition toward clean energy sources to produce electricity.
Utilities are also focused on strengthening the grid and transmission and distribution infrastructure. The huge infrastructure of the utilities faces the impact of the hurricane season each year. Infrastructure enhancement around the year increases the resilience of the entire system, reduces outages and allows operators to restore power quickly to customers affected by storms.
Vistra Corp., with its expanding clean power generation portfolio and customer base, renewable operations, and well-chalked-out capital investments to strengthen infrastructure, offers an excellent opportunity to stay invested in the utility space. Other utilities worth adding to your portfolio are Exelon Corp. , Entergy Corp. and Ameren Corp.
About the Electric Power Industry
The Utility – Electric Power industry involves the generation, transmission, distribution, storage and sale of electricity to customers. A major portion of utilities’ earnings is generated from regulated operations. Unless there is any major weather variation, demand for the services provided by utilities remains steady, regardless of economic cycles. A very hot summer and cold winter season increases demand for electricity.
A clear transition is evident in this industry, with more companies declaring zero-emission goals. The increasing usage of the Internet globally and an expected increase in artificial intelligence (AI) in the future will create a rise in demand for electricity. AI-based queries need substantially higher power than traditional Internet searches, music and photos. The declining interest rate is a tailwind for capital-intensive utilities.
3 Electric Power Industry Trends in Focus
Interest Rate Decline is a Tailwind: To maintain, upgrade and expand operations, utilities approach capital markets for loans. Multiple rate hikes by the Federal Reserve took the benchmark rate to the 5.25-5.50% range, adversely impacting utility operators. The U.S. Federal Reserve has finally lowered the benchmark rate, with three rate cuts lowering the existing rates by 100 basis points and bringing down rates to a range of 4.25-4.50%. Capital-intensive domestic-focused utilities will benefit from the Fed’s decision to reduce interest rates. The drop in interest rates is a big positive for utility operators planning large investments in infrastructure upgrades.
Transition Toward Cleaner Sources to Generate Power: The operators in the U.S. electric power sector are gradually moving toward cleaner sources of energy. Per the U.S. Energy Information Administration (EIA), the annual share of U.S. electricity generation from renewable energy sources will rise from 23% in 2024 to 25% in 2025 and touch 27% in 2026 as a result of the continuing addition of solar and wind-generating capacity.
The passage of the Inflation Reduction Act should support and accelerate the utilities’ transition toward clean energy sources. It has removed the uncertainties relating to federal incentives provided for the use of renewable sources. The act entails an opportunity for a wide range of low-cost clean energy solutions in a predictable way for a long time and will create earnings visibility.
Rising Demand and Price for Electricity: Per EIA, electricity supply volumes in the United States will increase by 2% in 2025 from the 2024 level and further increase by 1% in 2026. A major portion of the electricity will be generated from clean energy sources. The development of large data centers in the United States is also increasing the electricity demand. Data centers consumed 4.4% of the U.S. electricity generation in 2023.
Per the U.S. Department of Energy release, data centers will consume between 6.7% and 12% of U.S. electricity by 2028. EIA predicts the price of electricity to U.S. residential customers in 2025 to average 16.94 cents per kWh, about 2.7% higher than the 2024 level and increase further in 2026 by 3.4% from the 2025 levels. Rates are also predicted to increase for industrial and commercial customers. The increase in electricity prices in the near term should favor the utilities.
Zacks Industry Rank Indicates Weak Prospects
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates weak near-term prospects. The 59-stock Utility-Electric Power industry is housed within the broader Zacks Utilities sector and currently carries a Zacks Industry Rank #146, which places it in the bottom 41% of more than 249 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate.
Before we present a few Utility - Electric Power stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and current valuation.
Electric Power Industry Lags S&P 500 but Beats Sector
The Utility Electric Power industry has lagged the Zacks S&P 500 but outperformed its sector over the past 12 months. The industry has gained 21.6% compared with its sector’s 15.7% rally. The Zacks S&P 500 composite has gained 24.2% in the same period.
Electric Power Industry Trading at a Discount
On the basis of EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) TTM, which is a commonly used multiple for valuing Utility Electric Power companies, the industry is trading at 14.01X compared with the S&P 500’s 17.7X and the Utility sector’s 14.19X.
Over the past five years, the industry has traded as high as 21.28X and as low as 10.99X, with the median being 15.38X.
Electric Power Industry Stocks to Add for Better Returns
Utilities is a mature sector, and all the stocks selected from the Zacks Utility Electric Power industry have a market capitalization of more than $20 billion. The stocks currently have a Zacks Rank #2 (Buy) each and have long-term capital investment plans, so a rate decline will definitely help these utilities. All stocks have returned better than the industry in the past 12 months. You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
Vistra Corp.: Irving, TX-based Vistra, together with its subsidiaries, operates as an integrated retail electricity and power generation company. The company’s systematic capital investment plans and expanding customer base should further drive its performance. It expects to invest nearly $2.22 billion in 2025. Vistra’s integrated business model provides it with a competitive advantage compared with its non-integrated competitors.
VST’s long-term (term (three to five years) earnings growth rate is pegged at 23.05%. The Zacks Consensus Estimate for Vistra’s 2025 earnings per share has implied growth of 0.95% in the last 60 days.
Exelon Corp.: Chicago-based Exelon focuses on the transmission and distribution of electricity. EXC has plans to invest $38 billion in different projects in the 2025-2028 period. EXC’s current dividend yield is 3.55%. Traditionally, demand for electricity is adversely impacted by weather fluctuation and lower usage by customers. To offset the loss of revenues due to lower customer usage, nearly 78% of Exelon’s distribution revenues are decoupled. Decoupling insulates the top line from load fluctuations and leads to stable earnings,
EXC’s long-term earnings growth rate is pegged at 5.71%. The Zacks Consensus Estimate for Exelon’s 2025 earnings per share indicates growth of 0.4% in the last 60 days.
Entergy Corp.: New Orleans, LA-based Entergy is primarily engaged in electric power production and retail distribution of power. It expects capital deployment of nearly $37 billion in different projects from 2025 to 2028. These investments will mainly help the company deliver energy efficiently, improve customers’ experiences and provide environmental and cost-efficiency benefits to its customers.
ETR’s long-term earnings growth is pegged at 8.4%. The Zacks Consensus Estimate for ETR’s 2025 earnings is pegged at $4.29 per share, indicating growth of 1.4% in the last 60 days.
Ameren Corp.: St. Louis, MO-based Ameren, incorporated in December 1997, is a utility company that generates and distributes electricity and natural gas to residential, commercial, industrial and wholesale end markets in Missouri and Illinois. It expects capital deployment in excess of $26.3 billion in different projects from 2025 to 2029. Ameren’s growth has been led by its systematic and consistent investments in growth projects and infrastructural upgrades.
AEE’s long-term earnings growth is pegged at 6.6%. The Zacks Consensus Estimate for AEE’s 2025 earnings is pegged at $4.93 per share, indicating growth of 0.2% in the last 90 days.
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