Renewable Investments And Data Center Growth Will Increase Future Energy Demand In Iowa

Key Takeaways

• Planned investments in renewable energy projects aim to boost future revenue and operational efficiency, positively affecting net margins and capacity revenues.
  
• Economic and regulatory progress in Iowa and Wisconsin is expected to foster growth, enhancing revenue and margins by expanding the customer base.
  
• Economic dependencies on data centers and renewable energy tax credits, along with regulatory and weather risks, could affect revenue stability and financial health.

Catalysts

Operates as a utility holding company that provides regulated electric and natural gas services in the United States.

• The approved electric rate review construct in Iowa stabilizes electric base rates, supporting economic development and potentially increasing company revenue through growing energy demand and capturing economic growth.
  
• Secured commitments for up to 1.9 gigawatts of additional data center load are expected to increase energy sales, which can enhance sales revenue by distributing fixed costs over a larger customer base.
  
• Planned significant capital investments in renewable energy projects, such as new solar and wind projects, are likely to increase future revenue and operational efficiency, impacting net margins positively with higher energy margins and capacity revenues.
  
• Tax credit and grant support, along with conditional loan commitments from the U.S. Department of Energy, are set to reduce capital costs and improve overall financial health, potentially increasing earnings and cash flow stability.
  
• Economic and regulatory advancements in Iowa and Wisconsin are geared toward fostering growth and attracting investments, which could drive long-term revenue and margin improvements by expanding the customer base and diversifying energy resources.

Alliant Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Alliant Energy's revenue will grow by 6.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 17.3% today to 20.5% in 3 years time.
• Analysts expect earnings to reach $974.6 million (and earnings per share of $3.66) by about May 2028, up from $690.0 million today. The analysts are largely in agreement about this estimate.
• 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 22.7x today. This future PE is lower than the current PE for the US Electric Utilities industry at 21.1x.
• Analysts expect the number of shares outstanding to grow by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Alliant Energy Future Earnings Per Share Growth

Risks

• Economic development efforts are heavily tied to data center investments, which may be sensitive to changes in the tech industry or broader economic conditions, potentially impacting revenue growth and capital expenditure plans.
  
• The company's reliance on tax credits for renewable energy investments poses a risk; changes in legislation or tax policy could negatively affect earnings and available financing options.
  
• The ongoing need for flexible rate structures and advanced ratemaking principles in regulatory environments may face legal or political challenges, potentially impacting revenue stability and net margins.
  
• Warmer-than-expected temperatures have negatively impacted electric and gas margins, indicating potential vulnerability to weather conditions, which may affect future earnings.
  
• The increase in debt financing to support capital expenditure plans could raise interest expenses and affect net margins if interest rates rise or economic conditions worsen.

Valuation

• The analysts have a consensus price target of $65.087 for Alliant Energy 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 $70.0, and the most bearish reporting a price target of just $57.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.8 billion, earnings will come to $974.6 million, and it would be trading on a PE ratio of 20.6x, assuming you use a discount rate of 6.2%.
• Given the current share price of $61.11, the analyst price target of $65.09 is 6.1% 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.