Regulated utilities outshine high-valuation merchant power
The guest argued that regulated utilities with long-term contracts offer highly visible double-digit total returns, making them more attractive than high-multiple merchant energy producers.
The argument
Regulated utilities are signing 10-to-15-year contracts with large-load customers like Meta and Micron, supporting steady high-single-digit EPS growth plus dividends. In contrast, merchant power companies trade at excessive multiples without the same contract duration.
The thesis, stress-tested
✓ What validates it
- ✓NextEra Energy maintaining 8-9% EPS growth through 2035
- ✓Approval of NextEra's acquisition of Dominion assets in the PJM network
▸ Risks discussed
- ▸Regulatory caps on power price increases in key networks like PJM
- ▸Rising interest rates increasing the cost of utility capital expenditure
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