On Monday, CFRA downgraded PPL Corp (NYSE:PPL) from Buy to Hold based on valuation concerns after a significant year-to-date stock price increase. The analyst at CFRA provided a revised 12-month target for PPL Corp of CAD62, which is a CAD3 increase from the previous target. This new target is based on an 11.0x multiple of enterprise value (EV) to the projected 2025 EBITDA, slightly above the company's historical forward average.
The firm has also adjusted its 2024 earnings per share (EPS) estimate for PPL Corp, reducing it by CAD0.04 to CAD4.34, while maintaining the 2025 EPS estimate at CAD3.45. The downgrade comes as PPL shares have risen 30% year-to-date, a surge attributed to the anticipation of future natural gas movements from interior Western Canada to the West Coast, in line with the expected service commencement of LNG Canada, which is set to boost gas exports to Asia.
However, current market prices for natural gas in Alberta are considered low, estimated at about USD0.70 per million British thermal units (MMBtu), which could lead to a scaling back of dry gas production in 2025. This potential reduction in production may cap the incremental midstream demand beyond what is currently expected.
Despite these concerns, the analyst acknowledges that the start of commercial service by LNG Canada, which is anticipated by mid-2025 according to The Canadian Press, should eventually lead to improved demand and pricing for natural gas. Nonetheless, the analyst cautions that LNG projects are not only costly but also subject to delays. PPL Corp's shares currently yield a 4.7% dividend.
In other recent news, PPL Corp demonstrated a steady financial performance with GAAP earnings of $0.26 per share and adjusted earnings of $0.38 per share from ongoing operations. The company reaffirmed its 2024 earnings forecast of $1.63 to $1.75 per share. Additionally, PPL Corp secured an agreement with the U.S. Department of Energy's Office of Clean Energy Demonstrations for a funding award of up to $72 million to support a carbon dioxide capture research initiative at its natural gas facility in Louisville, Kentucky.
In terms of analyst notes, JPMorgan initiated coverage on PPL Corp with an Overweight rating, citing the company's potential for top-tier growth due to its transition from coal to cleaner energy sources. Similarly, Jefferies raised the target price for PPL Corp to $39.00, maintaining a Buy rating on the stock after a positive update on the company's generation refresh in Kentucky.
PPL Corp's strategic cost management and favorable regulatory environment were also highlighted as contributing factors to the company's projected earnings growth. The company's robust financial position, with a strong 16-18% funds from operations to debt ratio and no need for equity issuance through 2027, was noted as a differentiator in the utility sector.
InvestingPro Insights
Recent data from InvestingPro adds context to CFRA's valuation concerns about PPL Corp. The company's P/E ratio stands at 28.69, which is relatively high compared to its near-term earnings growth, as highlighted by one of the InvestingPro Tips. This aligns with CFRA's decision to downgrade the stock based on valuation after its significant price increase.
Despite the valuation concerns, PPL Corp shows some positive financial indicators. The company's revenue for the last twelve months as of Q2 2024 was $8.259 billion, with a gross profit margin of 42.84%. Additionally, PPL Corp has maintained dividend payments for 54 consecutive years, demonstrating a strong commitment to shareholder returns. This consistent dividend history may contribute to the stock's attractiveness, even at current valuation levels.
It's worth noting that PPL Corp is trading near its 52-week high, with its current price at 98.02% of the 52-week high. This supports CFRA's observation of the stock's significant year-to-date increase. Investors considering PPL Corp should weigh these factors carefully.
For those seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for PPL Corp, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.