Is It Time to Buy This Dividend Stock With Nuclear Energy Upside?
Understanding the Nuclear Energy Landscape
Despite President-elect Donald Trump’s criticism of renewable energy, the political environment seems more favorable for nuclear energy. Trump’s decision to appoint Oklo board member Chris Wright as energy secretary signals a commitment to nuclear technology. This development ties into broader government goals, which aim to triple the nation’s nuclear energy capacity by 2050. As these policies take shape, investors are increasingly eyeing the utility sector for opportunities in the ongoing energy transition. One utility stock gaining attention is Pacific Gas & Electric Company (PG&E), particularly because of its promising ties to nuclear energy and the adoption of artificial intelligence (AI) to enhance efficiency.
About Pacific Gas & Electric Company
Based in San Francisco, Pacific Gas & Electric Company (PCG) predominantly functions as a regulated utility, delivering natural gas and electricity to approximately 16 million customers across 70,000 square miles in Northern and Central California. The company’s operations are divided into two primary categories: Electricity Distribution and Transmission, and Natural Gas Distribution and Transmission.
PCG’s market capitalization is currently at $55.02 billion, and its stock has seen a year-to-date increase of 16.7%. After suspending dividends in 2017 due to financial liabilities associated with California wildfires, the company resumed its quarterly payouts about a year ago. While PCG now offers a modest quarterly dividend of $0.01 per share, translating to a yield of 0.19%, it may appeal to investors looking for long-term dividend growth.
Strong Q3 Earnings Performance
In its most recent earnings report, PG&E saw a rise in both revenue and earnings, although its total operating revenue for the quarter fell short of analysts’ expectations. Operating revenues reached $5.94 billion, surpassing the $5.8 billion achieved in the same period the previous year but missing the consensus estimate of $6.67 billion. On the brighter side, adjusted earnings per share (EPS) increased by 54.2% to $0.37, exceeding expectations of $0.32. Significantly, this marked the fourth consecutive quarter of surpassing analysts’ earnings estimates. For the nine months ending September 30, PG&E reported net cash from operating activities of $6.3 billion, a notable increase from $4.5 billion year-over-year.
PCG is planning to enhance its capital expenditures (capex) by $1 billion for the 2024-2028 period to meet increasing customer demand, a move already approved by the California Public Utilities Commission. This will allow the company to raise billing rates and implement new net billing tariffs, ultimately driving long-term revenue growth. The necessary financing is secured, and PCG has stated it will not require additional equity this year, with only $3 billion needed from 2025-2028.
Over the past decade, the company has observed a compound annual growth rate (CAGR) of 4.01% in revenues and 7.04% in earnings. Analysts project that PCG will exceed industry averages, with forward revenue and earnings growth rates estimated at 5.74% and 19.30%, respectively, compared to 2.22% and 6.50% for the sector medians.
Future Prospects for PG&E
As the primary utility provider in Northern and Central California, PG&E is actively undertaking initiatives to mitigate risks associated with wildfires, notably its “10,000-mile underground program.” This ambitious undertaking is aimed at reducing the likelihood of wildfire damage to distribution lines. From January to September 2024, PG&E successfully installed 58 miles of underground powerlines along with 66 miles of covered powerlines with reinforced poles in high fire-risk areas.
Additionally, the utility has enhanced its wildfire detection capabilities by installing 14 new AI-enabled high-definition cameras, bringing the total to over 630 across its infrastructure. PG&E is also well-placed to capitalize on the growing electric vehicle (EV) market in California, which has the highest per capita EV ownership in the U.S. The partnership with infrastructure services company Itron aims to make EV charging more accessible and affordable, as the company has installed over 320 EV charging ports this year, bringing the total to about 1,040.
Moreover, PG&E’s CEO, Patti Poppe, highlighted that the company’s grid is currently operating at just 45% capacity. Advancements in technology could see this utilization rise to 80% by 2040, coinciding with projected power demand doubling by that timeline.
Analyst Ratings and Conclusion
Market analysts remain optimistic about PG&E, giving the stock a consensus rating of “Strong Buy” with a mean target price of $23.40. This suggests an upside potential of around 11.2% from current levels. Out of 16 analysts covering the stock, 12 have issued “Strong Buy” ratings, while one holds a “Moderate Buy” rating, and three have labeled it as a “Hold.”
In summary, PG&E is not just a utility company; it’s positioning itself at the forefront of a significant energy transition, leveraging nuclear energy advancements and AI technology to optimize operations. As the market evolves and demand shifts towards cleaner energy sources, PG&E’s strategic initiatives may resonate well with investors seeking growth combined with a steady dividend payout.