Analyst outlines opportunities in U.S. utilities sector

Utilities stocks are drawing renewed attention as investors look for value in names positioned for rising power demand, infrastructure expansion and long-term rate-base growth. Analyst Daniel Rich says several major utilities remain undervalued even as electricity needs climb with AI and data-centre development.

BNN Bloomberg spoke with Daniel Rich, senior equity research analyst at CFRA, who pointed to opportunities in Eversource Energy, Duke Energy and Sempra, noting that each is navigating regulatory challenges while maintaining competitive long-term growth profiles.

Key Takeaways

• Eversource remains discounted versus peers, with long-term upside tied to rate-base expansion and a more streamlined business despite new regulatory setbacks in Connecticut.
• The denied water-utility sale heightens concern over Connecticut regulation but does not materially change Eversource’s financial outlook, according to Rich.
• Duke Energy is set to benefit from rising electricity demand driven by AI and data-centre growth, supported by a larger capex plan and strong customer expansion in the Carolinas and Florida.
• Duke expects electricity sales to grow 1.5% to 2% next year and accelerate to 3% to 4% from 2027 to 2029, supporting a potential earnings pickup late in the decade.
• Sempra is transitioning toward a fully regulated model, with earnings expected to bottom this year before reaccelerating, helped by growth in California and Texas.

Read the full transcript below:

ANDREW: Now it’s time for Hot Picks. At one time, electric utilities were seen as a sleepy investment category — slow growth in the dividend, for example. But now, of course, they’re red hot with the soaring demand for power to run AI data centres.

Our guest has Eversource Energy as a top pick. It’s a provider of electricity and gas service, and he reckons it’s trading at a discount. Our guest on Hot Picks is Daniel Rich, senior equity research analyst at CFRA. Daniel, thanks very much indeed for joining us. Tell us about Eversource. What’s distinctive about them, please?

DANIEL: Yes, and good morning. Thank you for having me here. So it’s a timely question because, as you may see, Eversource Energy actually picked up a bit of bad news this morning that I can explain.

Eversource is an electric utility based primarily in the New England region — so Massachusetts, New Hampshire and Connecticut — and they’ve had some regulatory troubles in recent years in terms of local regulation that has put the stock at a discount valuation relative to peers.

Now we are very bullish on the name because of the discount. We think the growth potential, in terms of earnings-per-share growth and capital expenditure opportunities in the region, as well as dividend growth, are pretty competitive with the peer group and merit a better valuation.

Now, this morning, the stock is trading down a significant amount because the Connecticut utility board basically denied Eversource’s ability to liquidate or divest its water utility in the state. It’s a minor business — two per cent of revenues in 2024 — and we think the stock is down primarily because of what it says about the regulatory environment in Connecticut, not necessarily that the water business is so significant. If regulation is tightening, that is going to put pressure on shares.

Again, going into this morning, we held a strong buy opinion, and we saw the growth potential in terms of their rate-base growth — their ability to grow their asset base. We’re expecting around eight per cent annually over the long term, which is quite competitive with the peer group. And the dividend yield is 4.3 per cent. Up until now, it’s probably even higher with this news.

So we will need to rethink our decision here based on this news, but again, I think it’s potentially an overreaction based on regulatory concern and not so much a financial difficulty over whether they can divest the water utility.

ANDREW: And where — sorry, you may have touched on this — where is their core customer base, Eversource?

DANIEL: New England. So primarily Massachusetts, but also somewhat in New Hampshire and Connecticut. And, like I said, Connecticut is sort of the thorn in their side right now in terms of local utility pushback and regulatory pushback.

We saw shares trading at over a 20 per cent discount to the peer median before this morning. Now we’re probably looking at 25 to 30 per cent. This is a stock that historically has traded around 16 or 17 times forward earnings, and now we’re looking at a stock that’s probably south of 13 or even 12 times earnings.

So again, unless the company comes out with some significant guidance change after today’s decision — which I don’t expect — we do think there is considerable upside potential for long-term investors in Eversource.

ANDREW: Your next idea — huge player — Duke Energy. What attracts you there?

DANIEL: Right, so Duke Energy is one of the largest electric utilities in the United States — long-term, traditionally run name — and they are primarily based in the Southeast, so North and South Carolina and Florida, as well as the Midwest. They have operations in, for example, Ohio and Indiana.

Duke Energy is one of the names that we think is leading the way in terms of the infrastructure build-out for data centres and artificial intelligence that’s going to be needed in this country. Their capital expenditure plan was recently increased from US$87 billion to what we think is going to be US$95 billion from 2026 to 2030, which is significant in terms of electric transmission, distribution, natural gas distribution and new electric generation capacity — gas and renewables — to power all of this electricity demand we’re seeing.

They’re projecting what we think is an attractive pace of electricity sales growth in their service territory next year — somewhere between 1.5 and 2 per cent — and then an acceleration of electric sales of three to four per cent from 2027 through 2029, which is well beyond historical norms.

We think customer growth in their territories, particularly in the Carolinas as well as Florida, is very healthy. It’s also supporting their ability at the regulatory level to get all this capital spending approved. We think it supports a potential earnings acceleration toward the end of this decade.

Right now, they tend to grow earnings about six to seven per cent annually, but toward 2028–29, that might accelerate to seven or even eight per cent, which would put it in a higher echelon and at a more competitive valuation relative to peers.

The shares yield 3.6 per cent. And, like I said, the data-centre trend — especially in North Carolina — is attractive. Amazon Web Services had a US$10-billion investment that they announced recently that is going to support Duke Energy.

ANDREW: We’d better keep it moving. I’m sorry — you’ve only a minute left for your last idea. Sempra Energy. What attracts you to this stock?

DANIEL: Right, so Sempra is a company primarily based in California and Texas — two very attractive markets, especially Texas, which is probably one of the fastest-growing in terms of electricity demand and data-centre growth.

This is a name that we think, after a lot of divestitures of non-regulated businesses in Mexico and several liquefied natural gas terminals in Central America, is expected to see earnings bottom this year and then accelerate in the future. They have an attractive seven-to-nine-per-cent growth target in terms of earnings per share, and we think they can reach the top end of that.

Because of their divestitures of non-regulated businesses, the earnings mix of their regulated operations is probably going to be close to 100 per cent, as opposed to about 80 per cent today. We think it’s a less risky play, and the valuation should benefit as a result.

ANDREW: Daniel, thank you very much indeed. Daniel Rich, senior equity research analyst at CFRA.

—

This BNN Bloomberg summary and transcript of the Nov. 19, 2025 interview with Daniel Rich are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.