PPL Stock Underperforms Its Industry YTD: What Should Investors Do?
PPL Corporation PPL shares have gained 4.2% in the year-to-date period compared with the Zacks Utility-Electric Power industry’s rally of 8.9%. However, PPL is benefiting from increased data center demand, particularly in Pennsylvania and Kentucky, as these facilities require substantial electricity.
Another operator from the same industry, Duke Energy DUK, has gained 8.9% during the same period. Duke Energy is positioning itself to meet the increasing demand from data centers. This proactive approach allows them to capitalize on the trend and maintain a competitive edge.
Given the current stability in price fluctuations, should you consider including PPL in your portfolio? Let's examine the factors in detail and assess the stock's investment prospects.
Factors Driving the Performance of PPL Stock
PPL continues to benefit from its focus on infrastructure construction projects for generation, transmission and distribution. Customers have been experiencing far less outages, courtesy of the company’s initiative to further strengthen its infrastructure.
PPL is working on its “Utility of the Future” strategy and has initiated an IT transformation effort to move to a common system across the company, developing common design and operations standards across its utilities. This includes more robust engineering and construction specifications to strengthen and automate the grid, thereby mitigating increasing weather and storm risks.
The company is experiencing growth in load, driven by increasing demand from data centers. Nearly 11 gigawatts (GW) of potential data center demand are in the advanced stages, representing a potential transmission capital investment of $700 million to $850 million. Active data center requests have increased to 50 GW for the 2026-2034 period in the Pennsylvania segment. The Kentucky segment announced the first 400 megawatt (MW) hyperscale data center campus in Louisville. Active data center requests have increased to nearly 6 GW for 2026-2034.
To meet rising demand and enhance service quality, PPL plans to invest $20 billion from 2025 through 2028. PPL is also working to reduce its operating and maintenance costs by at least $150 million by 2025 and $175 million by 2026. This should boost the company’s margins and support earnings growth.
PPL Stock’s Earnings Estimate
The Zacks Consensus Estimate for PPL’s 2025 and 2026 earnings per share (EPS) indicates an increase of 7.69% and 7.97%, respectively.
Another company, Xcel Energy XEL, is also set to gain from increasing demand from data centers. Xcel Energy expects a total customer request for data centers of nearly 8.9 GW by 2029. The Zacks Consensus Estimate for XEL’s 2025 and 2026 EPS indicates an increase of 8.86% and 8.06%, respectively.
PPL Stock’s Earnings Surprise History
PPL beat on earnings in three of the trailing four quarters and missed in one, delivering an average surprise of 8.84%.
Duke Energy also surpassed earnings in three of the trailing four quarters and missed in one, delivering an average surprise of 6.07%.
PPL’s Capital Return Program
PPL has a long history of dividend payments and plans to increase its annual dividend by 6-8% through at least 2028, subject to approval by its board of directors. Currently, its quarterly dividend is 27.25 cents per share, resulting in an annualized dividend of $1.09 per share.
PPL’s targeted dividend payout ratio is expected to be in the range of 60-65%. It is anticipated that the company will continue to increase its dividend in the future, driven by its sustained earnings and cash flow growth. Check PPL’s dividend history here.
PPL’s ROE Lower Than the Industry
PPL’s trailing 12-month return on equity of 9.14% is lower than the industry average of 10.31%. Return on equity, a profitability measure, reflects how effectively a company utilizes its shareholders’ funds to generate income.
PPL Stock Trades at a Premium
PPL is currently trading at a premium compared with its industry on a forward 12-month P/E basis.
Xcel Energy is also trading at a premium compared with its industry’s P/E F 12M.
Summing Up
PPL’s strategic investments help it expand clean energy generation and enhance its infrastructure. This is expected to help the company improve service reliability. The company also benefits from increased demand from data centers.
However, PPL’s lower ROE compared to its industry average, weakness in share price, and the stock’s premium valuation create concerns at the moment.
The investors can hold onto this Zacks Rank #3 (Hold) stock and enjoy the benefits of regular dividends and earnings growth estimates. Given its premium valuation, new investors can wait and look for a better entry point.
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