Even as President-elect Donald Trump has railed against renewable energy, his stance has been less antagonistic towards nuclear - as highlighted by his selection of Oklo (OKLO) board member Chris Wright for his incoming administration's energy secretary. Moreover, Trump's previous administration supported advancements in nuclear energy technology, implying that maybe more of the same is in the cards for his second rodeo at the White House.
Nuclear energy's prospects certainly look upbeat in the long term, with the government aiming to triple capacity by 2050. With long-term policy support expected, investors have been turning to the previously sleepy utility sector to tap into the next phase of the energy transition. Here's a closer look at one newly dividend-paying utility name with nuclear energy upside that's also making use of artificial intelligence (AI) to optimize its operations.
About Pacific Gas & Electric Company
Based out of San Francisco, Pacific Gas & Electric Company (PCG) primarily operates as a regulated utility providing natural gas (NGZ24) and electric service to approximately 16 million customers across a 70,000-square-mile area in Northern and Central California. Its operations are categorized into two main areas: Electricity Distribution and Transmission; and Natural Gas Distribution and Transmission. The company's market cap currently stands at $55.02 billion.
PCG stock has gained 16.7% on a YTD basis.
After suspending its dividends in 2017 due to liabilities stemming from California wildfires, the company reinstated its quarterly payout relatively recently, about a year ago.
While CEO Patti Poppe said at the time that "having a normal utility profile will take some time on the dividend front," she added, "We expect to recommend growing the dividend at least as fast as our industry-leading earnings per share growth and potentially quite a bit faster given our low starting point."
So, although the company now offers a modest quarterly payout of just $0.01 per share, for a dividend yield of 0.19%, investors in search of a dividend grower may find PCG to be a solid pick.
Solid Q3 Earnings
In the most recent quarter, PCG reported growth in both revenue and earnings, although its top-line results fell short of consensus estimates. Operating revenues for the quarter came in at $5.94 billion against a $6.67 billion estimate, up from $5.8 billion in the year-ago period. Adjusted EPS rose 54.2% to $0.37, outpacing the consensus estimate of $0.32. Further, this marked the fourth consecutive quarter that PCG beat analysts' earnings estimates.
For the nine months ended Sept. 30, the company's net cash from operating activities came in at $6.3 billion, up from $4.5 billion in the year-ago period.
PCG said it's adding $1 billion to its 2024-2028 capex plan in response to growing customer demand, which the California Public Utilities Commission has already approved, allowing the company to raise billing rates and implement new net billing tariffs. These initiatives are expected to drive long-term revenue growth. Financing for the increased amount is already in place, and PCG backed its guidance for no equity needs this year, and $3 billion from 2025-2028.
Over the past 10 years, the company's revenues have clocked a CAGR of 4.01%, while earnings have compounded at a rate of 7.04% over the same period. Notably, analysts are also predicting that PCG will generate industry-beating revenue and earnings, with forward revenue and earnings growth pegged at 5.74% and 19.30%, compared to the sector medians of 2.22% and 6.50%, respectively.
What's Next for PCG?
PCG provides electricity and natural gas to more than 16 million people, dominating Northern and Central California’s utility market across a 70,000 square-mile service area. Following costly disasters in the last decade, the company is actively working toward its ambitious "10,000-mile underground program" aimed at protecting its distribution lines from wildfires and minimizing risk.
During the first nine months of 2024, PG&E constructed 58 miles of underground powerlines and 66 miles of covered powerlines with reinforced poles in high fire-risk areas, totaling 120 and 113 miles, respectively. Additionally, the utility installed 14 new AI-enabled high-definition cameras for wildfire detection, bringing the total to over 630 across its system.
PG&E is also well-positioned to benefit from the growing demand for electric vehicles (EVs) in California. The state has over 1.1 million electric vehicles, the highest per capita ownership in the U.S., and more than 15,000 charging stations, which account for about 29% of all U.S. charging stations. To that end, the utility is joining forces with infrastructure services company Itron (ITRI) to make EV charging more accessible and affordable for PG&E's customers. The company installed more than 320 EV charging ports YTD, reaching a cumulative total of approximately 1,040 new ports added.
Additionally, CEO Poppe noted that the company’s grid is currently underutilized, at just 45% capacity. With modern computing advancements, the grid's utilization is expected to ramp up to 80% by 2040, coinciding with projected demand for power doubling over that period.
Moreover, recently, PCG launched the first commercial deployment of an on-site generative AI solution for the nuclear energy sector at Diablo Canyon.
Analysts Say PCG is a “Strong Buy”
Analysts are quite bullish about PCG stock, and have a consensus rating of “Strong Buy” with a mean target price of $23.40. This indicates an upside potential of about 11.2% from current levels.
Out of 16 analysts covering the stock, 12 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, and 3 have a “Hold” rating.
