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PPL Corporation (PPL) to Gain From Domestic Focus, Investment

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PPL Corporation’s (PPL - Free Report) earnings performance will benefit from expanding domestic operation, the completion of the Narragansett Electric acquisition, focus on cleaner generation and ongoing capital investments to strengthen infrastructure.

However, this Zacks Rank #3 (Hold) company’s segments have to face strong competition in the transmission business.

Tailwinds

PPL Corporation divested its U.K. utility business to National Grid to focus on its core operations in the United States. PPL’s capital investment plan primarily focuses on infrastructure construction projects for generation, transmission and distribution. Customers have been experiencing far less outages, courtesy of the ongoing investments for strengthening its infrastructure. The company aims to invest $14.3 billion in 2023-2026 to strengthen its operations.

Narragansett Electric Company’s acquisition will give PPL a more diversified asset portfolio by lowering the percentage of income from coal generation and expanding the scope of investment in a sustainable energy future.

PPL’s electric sales volume in its Pennsylvania and Kentucky segments improved year over year. Our model predicts that Kentucky and Pennsylvania segments will contribute 85% to PPL’s total operating revenues, annually, through 2025.

PPL has a strong liquidity position and it will be able to defer capital spending, if necessary. As of Dec 31, 2022, PPL had unused credit capacity of $1,955 million, which further enhanced its liquidity. The company is also expected to lower its outstanding debt.

Headwinds

PPL’s dependence on subsidiaries, rising competition in the transmission space, increases in interest rates and unplanned outages at power plants might adversely impact its financial conditions.

Any delay or failure in the completion of projects on time or within budget, and an increasing interest rate will raise PPL’s borrowing costs. These factors can have an adverse effect on the company's operating and financial results.

Stocks to Consider

Some better-ranked stocks from the same industry are NiSource Inc. (NI - Free Report) , Xcel Energy, Inc. (XEL - Free Report) , and CenterPoint Energy, Inc. (CNP - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for NiSource, Xcel Energy and CenterPoint Energy’s 2023 EPS indicates increases of 6.12%, 6.31% and 7.97%, respectively.

Long-term (three- to five-year) earnings growth of NiSource, Xcel Energy and CenterPoint Energy are pegged at 6.8%, 6.62% and 6%, respectively.


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