US energy companies reporting: 3 issuers Barclays is wary of

Barclays has named three energy companies that the bank's analytical team is wary of ahead of the publication of their reports. These are U.S. energy suppliers WEC Energy, Alliant Energy and Talen Energy. Since the beginning of the year, their shares have risen in value by 22%, 15% and 98%, respectively. They are trading near all-time highs, thanks in part to rising energy demand from data centers. Of the three, WEC Energy is the first to report on Oct. 30, Talen Energy on Nov. 5 and Alliant Energy on Nov. 6.

- In case with WEC Energy, Barclays' caution is primarily due to the fact that the current valuation of its shares looks too high, and the market has already taken into account all growth factors in the quotations. The target price from the bank is $110, which is about 4% below the closing level of October 29, rating "neutral".

Barclays took into account about $4 bln of additional equity capital in its forecast of WEC Energy's capital expenditures until 2029 - that is, the company will increase its expenses more strongly. However, the bank believes that its long-term profit growth rate will remain the same (at 7% per year), which is already in line with market expectations.

There are no surprises in the reporting for the better, the bank writes. Analysts expect the company to confirm its full-year EPS guidance of $5.17-5.27 (market consensus is $5.24) and raise its target for the average annual EPS growth rate through 2029 from 6.5-7% to 7.5-8%.

- In the case of Talen Energy, analysts at Barclays maintain a positive overall outlook with an "above market" rating in the long term with a target price of $439 per share, up 10.1% from the closing price on Oct. 29.

But, they write, Talen has overly inflated expectations for its quarterly results and lacks new growth drivers for the rest of the year. The company has already reported all of its deals and power sales agreements, and there's no news yet to push the stock up. For example, in June, Talen entered into an agreement with Amazon Web Services for a long-term partnership and the delivery of 1.92 GW of power.

Barclays also notes that the company may report adjusted EBITDA of $338 million, below consensus of $402 million. Talen Energy is also facing a delay in regulatory approval for its $3.5 billion acquisition of gas-fired power plants in Ohio and Pennsylvania. That could delay the purchase of new assets and business expansion. The deal is now expected to be approved in the first quarter of 2026, rather than the fourth quarter of 2025, as previously.

- The story is a little different with Alliant Energy. Barclays kept the rating "below market" and raised the target price from $60 to $65. The downside potential is 4.1% from the closing price on October 29. The bank warned: the company this quarter may fall short of the consensus EPS estimate of $3.43 for 2026. Barclays itself believes the company will give EPS guidance of $3.4 per share. The bank's analysts write that it is precisely because of the risk of such a small miss that they treat the company's shares cautiously.

That said, Barclays doesn't think the company will change its long-term earnings growth forecast, and it will remain at 5-7% per year.

In addition, the bank expects the company this quarter to approve its 2026 revenue guidance and update its financing and capital expenditure plan through 2029. There, they expect it to include the QTS Madison data center supply project, to which the company will supply power over the long term.

Barclays has identified five companies with clear and strong earnings growth drivers that are expected to see positive news in the coming months. These are Entergy, Edison International, Dominion Energy, PG&E and NRG Energy.

Barclays considers NRG Energy the most attractive among power generators - unlike Talen, where quarterly earnings forecasts are inflated and there is a high probability of disappointment, NRG's situation is much more stable. It has already financed a deal with LS Power to acquire 18 gas-fired power plants for 13GW. And now Barclays expects the company to update its EBITDA and free cash flow forecasts for 2026, as well as reaffirm its EPS growth target of around 14% annually.

Entergy's main growth driver is a major deal with Meta on the Hyperion project. This is about building facilities that will supply energy to the tech giant's data centers. The contract could grow to 5 gigawatts, and each additional gigawatt adds about 18 cents to earnings per share.

Barclays' bet on Edison International is explained, among other things, by the fact that the company is likely to beat consensus in the third quarter, as it will show accumulated regulated revenue for three quarters at once. Analysts also note Edison's progress in managing wildfire risk - critical for U.S. utility companies. Investors, analysts and regulators are therefore closely watching how the company mitigates these risks.

In PG&E's case, the main factor that Barclays is focusing on is the report on fire risk reduction. Analysts believe the market is still pricing in too much of a premium for fire risks, and so PG&E's stock has upside potential simply by normalizing the perception of those risks.

According to Dominion Energy, the bank recognizes that there is a lot of buzz around the company right now related to the Virginia Offshore Wind Project, which involves building wind turbines offshore off the coast of Virginia. Installation was supposed to begin in October, but that didn't happen. In the state of Virginia itself there is a gubernatorial election race - the elections are scheduled for November 4. This is a factor of uncertainty for the company, as their outcome could affect regulatory policy in the state. But, according to Barclays, the project itself is on track.

In general, Barclays' attitude to the utilities sector, which includes electricity suppliers, remains positive. It ranks third in terms of returns among all sectors since the beginning of the year. But at the same time, utility companies are trading at a 15% discount to the S&P 500 on a P/E multiple, and analysts believe that this gap is unjustifiably large.

Barclays believes that the main intrigue of the quarter under review is the updated forecasts for 2026 and a possible increase in investment in new capacity due to growing demand from data centers.

Morgan Stanley also believes that investors' attention will be focused on the development of data center construction projects. According to the data of utility companies, terms of connection of new data centers to power grids continue to grow: American Electric Power noted the increase of terms of connection to power grids in the state of Ohio up to 5-7 years, follows from the materials of Morgan Stanley.

The bank recommends watching for signs of further lengthening of connection times, initiatives to simplify and accelerate grid access, and increased construction activity in new regions that could benefit from a redistribution of demand. According to Morgan Stanley, investors will pay increased attention to capacity availability and how companies are coping with regulatory pressure.

This article was AI-translated and verified by a human editor