On Tuesday, Mizuho initiated coverage on Evergy (NASDAQ:EVRG) stock, a utility company, with an Outperform rating and a price target of $67.00. The firm's analysis suggests that Evergy's shares are currently trading at a roughly 12% price-to-earnings (P/E) discount compared to its peer group. Analysts at Mizuho believe that the company's stock has the potential to close this gap and trade at a low-single-digit discount in the near term, with the possibility of reaching an in-line multiple over the long term.
The optimistic outlook for Evergy is based on two key points. Firstly, there is an expectation that Evergy can identify capital investment opportunities that will allow it to grow its rate base and earnings at a pace similar to its industry counterparts. Secondly, the firm anticipates that regulatory conditions in Kansas, where Evergy operates, will continue to improve.
According to Mizuho's assessment, Evergy's current plan is to increase its rate base at a compound annual growth rate (CAGR) of 6% through 2028. This growth is projected to result in an earnings per share (EPS) increase of 4%-6% through 2026, without the necessity for additional equity.
The firm also sees potential for upside capital expenditure opportunities, especially in power generation, which could support the needs of data centers and manufacturing in both Kansas and Missouri. These opportunities are expected to contribute to a sustainably higher rate base and earnings growth for Evergy until the end of the decade.
InvestingPro Insights
Complementing Mizuho's optimistic outlook on Evergy (NASDAQ:EVRG), recent data from InvestingPro provides additional context to the company's financial position and market performance. As of the last twelve months ending Q2 2024, Evergy reported a revenue of $5.64 billion, with a gross profit margin of 49.95%. The company's P/E ratio stands at 19.01, slightly above the industry average, which aligns with Mizuho's observation of a current discount relative to peers.
InvestingPro Tips highlight Evergy's strong dividend history, having raised its dividend for 20 consecutive years and maintained payments for 33 years. This consistent dividend growth, coupled with a current dividend yield of 4.22%, may appeal to income-focused investors. The company's stock is trading near its 52-week high, with a robust year-to-date price total return of 20.98%, indicating positive market sentiment that supports Mizuho's Outperform rating.
It's worth noting that InvestingPro offers 8 additional tips for Evergy, providing a more comprehensive analysis for investors seeking deeper insights. These tips, along with real-time metrics, can be valuable for evaluating Evergy's potential to close the valuation gap as suggested by Mizuho's analysis.
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