Expanding Energy Horizons And Data Center Growth Set To Energize Future Earnings

Key Takeaways

• Strategic projects like the Wyoming expansion and data center partnerships aim to enhance resilience and revenue with stable earnings growth.
  
• Regulatory successes and infrastructure investments bolster revenue prospects, supporting stable long-term EPS growth through customer base expansion and new market opportunities.
  
• Operational challenges and rising costs risk squeezing margins, while regulatory dependencies and financial pressures threaten revenue stability and profit margins.

Catalysts

Through its subsidiaries, operates as an electric and natural gas utility company in the United States.

• The company is on track with its $800 million capital plan, including the Wyoming electric transmission expansion project, which will improve resiliency and capacity, likely providing cost stability and expanded energy market access, potentially boosting revenue and earnings.
  
• Regulatory initiatives have led to approval of new customer rates for Arkansas Gas, expected to contribute to margin improvement and drive steady revenue growth.
  
• Serving Meta's new data center starting in 2026 and attracting hyperscale customers using a capital-light model could drive a significant increase in EPS from data center customers, projected to rise to over 10% by 2028, impacting overall earnings positively.
  
• The ongoing $4.3 billion five-year capital investment plan includes substantial generation investments projected in 2026, aimed at meeting energy demands, expected to boost asset base and drive future revenue growth.
  
• Strategic focus on serving hyperscale data centers and blockchain opportunities, coupled with a history of stable customer growth, enhances future revenue streams and supports their 4-6% long-term EPS growth target.

Black Hills Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Black Hills's revenue will grow by 8.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.0% today to 13.4% in 3 years time.
• Analysts expect earnings to reach $358.7 million (and earnings per share of $4.58) by about November 2027, up from $254.7 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 16.5x on those 2027 earnings, down from 17.4x today. This future PE is lower than the current PE for the US Integrated Utilities industry at 20.4x.
• Analysts expect the number of shares outstanding to grow by 3.07% 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.

Black Hills Future Earnings Per Share Growth

Risks

• Unplanned generation outages and maintenance costs present reliability challenges, which could increase operational expenses and negatively impact net margins.
  
• Mild weather conditions have resulted in unfavorable financial impacts, potentially affecting revenue stability in the future.
  
• Higher interest rates have increased interest expenses, influencing the company’s overall earnings and profit margins.
  
• Rising insurance premiums and employee costs have added to operational expenses, which could squeeze net margins if not managed effectively.
  
• Regulatory approvals and rate implementations are contingent on commissions, posing a risk of potential delays or unfavorable rulings that could affect revenue.

Valuation

• The analysts have a consensus price target of $64.0 for Black Hills 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 $76.0, 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 2027, revenues will be $2.7 billion, earnings will come to $358.7 million, and it would be trading on a PE ratio of 16.5x, assuming you use a discount rate of 5.9%.
  
• Given the current share price of $61.77, the analyst's price target of $64.0 is 3.5% 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.