PPL Corporation PPL shares have gained 2.5% since it reported third-quarter 2024 results on Nov. 1. PPL reported third-quarter 2024 earnings of 42 cents per share, which surpassed the Zacks Consensus Estimate of 39 cents by 7.7%.

The PPL stock closed at $32.34 on Nov. 7. In the past six months, the company’s shares have gained 13.8% compared with the industry’s 5.5% rally. PPL has also outperformed the Zacks Utilities sector’s return of 6.2%.

PPL Price Performance (Six months)

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To assess whether it is a good time to add this utility to your portfolio, let’s delve deep into the factors influencing the increase in share price, review the third-quarter results and evaluate the stock’s investment potential.

Highlights of PPL’s Q3 Earnings

Total revenues of $2.07 billion increased 1.1% from the year-ago figure of $2.04 billion.

In the third quarter, the company sold 17,738 gigawatt hours of electricity to its customers in Pennsylvania and Kentucky, which reflects 1.5% year-over-year growth.

During the quarter, PPL completed the integration of Rhode Island Energy, exiting the remaining transition service agreements that were in place with National Grid following PPL's acquisition of Rhode Island Energy in May 2022.

In the quarter, PPL subsidiaries Louisville Gas and Electric and Kentucky Utilities filed their triennial Integrated Resource Plan (IRP) with the Kentucky Public Service Commission. The IRP envisions a need to add an estimated 2,700 MW to 3,200 MW of new natural gas, solar and battery storage through 2039 to safely, reliably and affordably serve future demand growth.

PPL’s Earnings Surprise History

Courtesy of the stable performance of its segments, the company was able to come out with earnings surprises in the trailing four quarters, resulting in an average positive surprise of 9.85%.

Based on its strong year-to-date financial performance and continued execution of its business plan, PPL narrowed 2024 ongoing earnings forecast range. PPL narrowed the 2024 earnings guidance range to $1.67 to $1.73 per share from $1.63 to $1.75 per share, increasing the midpoint a penny to $1.70 per share.

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Factors Acting in Favor of PPL Stock

PPL is experiencing load growth, driven by data center demand located in its Pennsylvania and Kentucky service territories. The company is in an advanced stage of discussion for 5 gigawatts (GW) of electricity supply to the data center operators. PPL can benefit from the rising demand for data centers as the new AI-driven data centers require more electricity compared with conventional data centers.

The demand for clean energy is increasing in PPL’s service territories, and the company is generating more clean energy to meet rising demand. PPL is replacing old coal plants with natural gas, renewables and battery storage.

PPL is developing an energy system that is reliable and affordable for customers and continues to make investments to strengthen the grid, electricity transmission and electricity and gas distribution. System hardening will prevent outages and improve restoration times in the face of more frequent and severe storms.

PPL operates in a constructive regulatory jurisdiction. Over 60% of PPL’s capital investment plan is subject to “contemporaneous recovery,” and it reduces the impact of regulatory lag on earnings for investments. The recovery of capital expenditure quickly allows the company to fund its long-term projects easily.

PPL Stock Returns Higher Than the Industry

PPL’s trailing 12-month return on assets is 3.25%, ahead of the industry average of 2.86%. Return on asset (ROA) is a financial ratio that measures how well a company uses its assets to generate profit. The current ROA of the company indicates that it is using its assets more efficiently than its peers.

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PPL Increases Shareholders’ Value

PPL aims to increase its dividend per share in the range of 6-8% annually through 2027, subject to its board’s approval. The current annual dividend of the company is $1.03. It projects dividend growth of 6-8% per year through 2027, on par with its earnings growth expectation. The current dividend yield is 3.18% better than Zacks S&P 500 Composite’s yield of 1.48%.

PPL’s payout ratio at the end of 2023 was 59%. With continued strength in its earnings and cash flow growth, PPL is expected to continue boosting its dividend going forward. Check PPL’s dividend history here.

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PPL Currently Trading at a Premium

PPL is currently valued at a premium compared to its industry on a forward 12-month P/E basis.

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Summing Up

PPL's investment in increasing clean energy production volumes and strengthening its grid will assist in providing reliable service to its customers. Efficient management of operations and constructive regulatory jurisdiction add to the company’s advantage.

Amid its high valuation, investors should enjoy the benefits of regular dividends, stable earnings performance and strong return on assets. It will be wise to remain invested in this Zacks Rank #3 (Hold) utility.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
 

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