Goldman Sachs On 10 Utilities Stocks: What To Buy, Sell And Is Neutral

Shares of companies in the utilities sector were under pressure in early trading on Friday.

The next phase for U.S. utilities has begun, with many companies becoming “decarbonization enablers” and their models could “drive value from several clear mega-themes,” according to Goldman Sachs.

The Utilities Analyst: Carly Davenport initiated coverage of 10 companies in the sector, which are considered the “enablers of decarbonization and grid transformation.”

Buy Ratings

• Southern Co SO: Price target of $80.
• NextEra Energy Inc NEE: Price target of $90.
• American Electric Power Company Inc AEP: Price target of $98.
• Xcel Energy Inc XEL: Price target of $75.
• Sempra SRE: Price target of $178.

Sell Ratings

• Consolidated Edison, Inc. ED: Price target of $88.
• Exelon Corp EXC: Price target of $39.

Neutral Ratings

• Dominion Energy Inc D – Price target of $55.
• Duke Energy Corp DUK – Price target of $99.
• Public Service Enterprise Group Inc. PEG – Price target of $64.

Check out other analyst stock ratings.

Mega-Themes In Utilities

Davenport named four mega-trends for the utilities sector, in the initiation note:

• Clean Technology (renewables and other energy transition technologies)
• Nuclear (source of zero carbon, firm power)
• Grid Reliability (which will require investments in transmission to support renewables)
• Liquefied natural gas, or LNG (which could help drive global coal displacement)

The Utilities Thesis

The analyst recommended buying shares of Southern Company for nuclear earnings growth, NextEra Energy for renewables growth, Xcel Energy and American Electric Power for grid reliability investments, and Sempra for LNG upside.

She added that Duke Energy, Dominion Energy, Public Service Enterprise Group, Consolidated Edison and Exelon have limited exposure to the mega-trends.

“The transformation of the U.S. power grid is underway,” Davenport wrote. “By 2032, we expect more than 45% of the power generation capacity in the U.S. to be from renewable sources and 6% from coal, relative to 30%/16% today and 17%/27% in 2012,” she added.

“As the power generation mix changes and the Energy transition progresses, particularly following the passing of the Inflation Reduction Act, we believe utilities are uniquely positioned to facilitate this shift and address associated challenges in a way that creates a cleaner power grid while maintaining reliability and customer affordability,” the analyst stated.

“This shift will require a significant amount of capital investment, which we believe will contribute to attractive earnings and rate base growth in the coming years,” she added.

Price Actions: At the time of publishing Friday:

• Southern Co had declined by 0.75% to $70.55.
• NextEra Energy had declined by 0.36% to $74.63.
• American Electric Power Company had declined by 0.58% to $84.19.
• Xcel Energy Inc had declined by 1.68% to $63.06.
• Sempra had declined by 0.44% to $148.43.
• Consolidated Edison declined by 0.54% to $93.47.
• Exelon Corp had declined by 0.32% to $40.
• Dominion Energy Inc had declined by 0.11% to $53.23.
• Duke Energy Corp had declined by 0.52% to $91.51.
• Public Service Enterprise Group had declined by 0.02$ to $62.13.

Photo: Shutterstock

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