Data Center Demand And PA KY Upgrades Will Drive Progress

Key Takeaways

• Surging electricity demand from data centers and economic growth is fueling investments in grid upgrades, boosting PPL's revenue and earnings potential.
  
• Strategic partnerships, policy support, and advanced technologies are enhancing operational efficiencies, margins, and long-term earnings stability.
  
• High reliance on regulatory approval, concentrated load growth, and traditional generation exposes PPL to policy, technological, demand, and stranded asset risks that threaten earnings and stability.

Catalysts

Provides electricity and natural gas to approximately 3.5 million customers in the United States.

• The accelerating growth in data center construction and new economic development (particularly in Pennsylvania and Kentucky) is driving unprecedented electricity demand, positioning PPL for outsized long-term rate base and revenue growth as it invests to serve these large new loads.
  
• Major planned grid infrastructure upgrades and generation capacity expansions, totaling $20B through 2028 (with upside from potential data center-driven transmission and new generation projects), set the stage for nearly 10% average annual rate base growth-directly supporting higher regulated revenues and future earnings.
  
• The company's new joint venture with Blackstone Infrastructure, targeting contracted, "regulated-like" generation for hyperscalers, provides a significant new avenue for capital deployment and value creation not yet fully captured in consensus, with potential to drive long-term earnings above base guidance as these projects come online.
  
• Regulatory and legislative tailwinds, including pending Pennsylvania bills to enable regulated utilities to build new generation and constructive stipulations in Kentucky for new power plants, lower regulatory lag and improve cost recovery-supporting net margin stability and reducing future earnings risk.
  
• PPL's ongoing adoption of advanced grid technologies, AI-driven efficiencies, and a sharpened, U.S.-only regulated utility model are set to drive long-term O&M savings, enhanced reliability, and improved customer satisfaction, which collectively strengthen net margins and support stronger, more predictable EPS growth.

PPL Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming PPL's revenue will grow by 2.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.2% today to 17.6% in 3 years time.
• Analysts expect earnings to reach $1.7 billion (and earnings per share of $2.15) by about September 2028, up from $986.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $1.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.6x on those 2028 earnings, down from 26.8x today. This future PE is greater than the current PE for the US Electric Utilities industry at 19.9x.
• Analysts expect the number of shares outstanding to grow by 0.21% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

PPL Future Earnings Per Share Growth

Risks

• PPL's substantial capital investment plan ($20 billion through 2028, alongside additional needs in Pennsylvania and Kentucky) depends on successful and timely cost recovery through rate cases, leaving them exposed to regulatory lag, cost overruns, or unfavorable rate decisions that could suppress earnings, net margins, and cash flow.
  
• The company's growing reliance on large load additions from data centers and hyperscalers introduces concentration risk-if demand is overestimated, if hyperscalers pursue alternatives (onsite generation, DERs), or if ESA negotiations stall, projected revenue and long-term rate base growth could fall short.
  
• Recent decisions, such as extending the life of the Mill Creek 2 coal unit and deferring battery storage projects, expose PPL to increased stranded asset risk if decarbonization mandates accelerate or if policy and public sentiment shift faster than anticipated, potentially leading to asset write-downs and impairments, negatively impacting net income and book value.
  
• PPL's focused U.S. operation in a small number of regulated jurisdictions leaves it vulnerable to adverse state-level regulatory changes or evolving rate structures (e.g., increased regulatory scrutiny on rate base growth or performance-based ratemaking), which could constrain allowable returns and put downward pressure on net margins and earnings stability.
  
• The heavy reliance on large-scale gas
• and coal-fired generation buildouts places PPL at risk if long-term policy trends or technology advancements favor renewables and distributed resources over traditional central generation, potentially resulting in higher compliance costs, underutilized assets, or disrupted revenue streams.

Valuation

• The analysts have a consensus price target of $38.308 for PPL based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $42.0, and the most bearish reporting a price target of just $34.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $9.6 billion, earnings will come to $1.7 billion, and it would be trading on a PE ratio of 20.6x, assuming you use a discount rate of 6.8%.
• Given the current share price of $35.73, the analyst price target of $38.31 is 6.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.