Revolutionizing Energy Generation Through Tactical Natural Gas And Solar Investments

Key Takeaways

• Strategic investments in generation and distribution are expected to boost revenue and earnings through increased capacity and demand from major customers.
  
• Regular rate case filings ensure timely investment recovery, aiding financial health and supporting adjusted EPS growth through 2029.
  
• Sensitivity to seasonal changes, increased infrastructure costs, and regulatory challenges could impact revenue, earnings growth, and shareholder value.

Catalysts

Engages in the generation, transmission, distribution, and sale of electricity in the United States.

• Evergy plans to invest in two new combined cycle natural gas plants and three solar farms, enhancing their generation capacity and supporting future economic growth. These investments are projected to increase revenue by serving increased demand from large new customers.
  
• The company's revised 5-year capital expenditure plan of $16.2 billion includes $2.4 billion in incremental generation investment and $1.3 billion in distribution, boosting their rate base growth by 8% annually through 2029, directly benefiting earnings.
  
• The introduction of major customers such as Google, Panasonic, and Meta is expected to add approximately 750 megawatts of load, with potential negotiations for up to 1,000 megawatts more, significantly driving revenue and earning potential.
  
• By maintaining a regular cadence of rate case filings (approximately every 18 months), Evergy aims to recover investments timely, which is essential for maintaining healthy net margins and earning growth.
  
• The anticipated demand growth of 2% to 3% through 2029, driven by new customer load, provides a sound basis for the projected adjusted EPS growth of 4% to 6%, positively impacting earnings.

Evergy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Evergy's revenue will grow by 3.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.8% today to 16.2% in 3 years time.
• Analysts expect earnings to reach $1.0 billion (and earnings per share of $4.43) by about November 2027, up from $853.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.2x on those 2027 earnings, which is the same as it is today today. This future PE is lower than the current PE for the US Electric Utilities industry at 21.0x.
• Analysts expect the number of shares outstanding to grow by 0.57% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.92%, as per the Simply Wall St company report.

Evergy Future Earnings Per Share Growth

Risks

• The reliance on cooler summer weather influencing earnings indicates sensitivity to seasonal changes, which could unpredictably impact revenue and earnings growth.
  
• Higher depreciation and amortization expense due to increased infrastructure investment could pressure net margins if not adequately offset by revenue growth.
  
• The substantial portion of investments tied to new generation projects, especially natural gas and solar, might face regulatory or execution delays impacting anticipated revenue streams.
  
• The planned use of a balanced mix of debt, equity, and equity-like securities to fund investments could dilute earnings per share if not managed carefully, impacting shareholder value.
  
• Frequent rate case filings and complex regulatory landscapes could present risks to achieving timely cost recovery, affecting revenue and financial stability.

Valuation

• The analysts have a consensus price target of $64.41 for Evergy 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 $71.0, and the most bearish reporting a price target of just $56.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $6.4 billion, earnings will come to $1.0 billion, and it would be trading on a PE ratio of 17.2x, assuming you use a discount rate of 5.9%.
• Given the current share price of $63.98, the analyst's price target of $64.41 is 0.7% 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.