How Does a Constructive Regulatory Framework Aid PPL's Growth?
PPL Corporation PPL, being a regulated utility, has its rates determined and approved by regulatory commissions. Rates are designed to permit both a controlled return on invested capital and the recovery of operating expenses.
The company has stated that it is able to deploy special mechanisms that avoid the drawn-out, conventional rate case process for 60% of its investment plan. This enables an earlier return on investment and a quicker cost recovery.
PPL is specifically permitted by the regulatory agreement to make investments in its infrastructure, such as clean energy projects and grid upgrades, and subsequently recoup the expenses and generate a return on those expenditures. PPL has $20 billion of capital investment needs through 2028, which are expected to result in an average annual rate base growth of 9.8% over the period.
PPL has a joint venture with Blackstone Infrastructure that is aimed at building new electric generation stations to power data centers under long-term energy services agreements (ESA). ESAs will be structured with regulated-like risk profiles that do not expose the companies to merchant energy and capacity price volatility.
Being a regulated utility reduces financing risks, ensures cost recovery and returns, shields the company from wholesale market volatility, and allows for steady rate base growth. PPL’s unit, Rhode Island Energy, has a revenue decoupling mechanism that mitigates its exposure to volumetric risk. Because of these advantages, PPL expects 6-8% yearly growth in earnings per share (EPS) and dividends.
Regulated Utilities Driving Stable Growth
Utilities benefit from being a regulated model through a supportive regulatory environment that allows for cost recovery on capital investments and helps maintain a stable earnings.
Duke Energy DUK: In 2023, DUK completed transition to fully regulated utility with a focus on significant grid and clean energy investments. The majority of electric capital investments are eligible for efficient recovery mechanisms.
Southern Company SO has increased its five-year capital investment plan by $13 billion, bringing the total to $76 billion, with 95% allocated to state-regulated utilities. The company’s focus on regulated investments ensures stable cash flows and supports long-term growth.
PPL’s Earnings Estimates
The Zacks Consensus Estimate for 2025 and 2026 EPS indicates an increase of 7.69% and 8.34%, respectively, year over year.
PPL Stock Trading at a Premium
PPL is trading at a premium relative to the industry, with a forward 12-month price-to-earnings of 18.71X compared with the industry average of 14.55X.
PPL Stock Price Performance
In the past three months, the company’s shares have risen 7.5% compared with the industry’s 2.1% growth.
PPL’s Zacks Rank
PPL currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
This article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research