Wall Street Likes 3 Electricity Stocks Amid the Texas Power Fallout
Barron's
Feb 24, 2021
The future was looking brighter for suppliers of electrical equipment. That was before the Texas electricity crisis. After the crisis, the outlook for their stocks is looking even better.
Industrial companies that manufacture or build electricity-transmission equipment came into 2021 with cyclical and secular trends both working in their favor.
Cyclically, the economy was improving from its pandemic-induced coma. More economic activity means more power demand and more sales for electrical equipment suppliers as well as for a host of cyclical industrial enterprises.
Secularly, demand is also improving for electrical suppliers as power generation from renewable sources is taking a bigger share of new electricity projects. Renewable generation requires more complicated grid-management equipment. What’s more, it takes a little more equipment to transmit electricity from, say, an offshore wind farm that it does from a centrally located natural-gas-fired power plant.
The Texas energy crisis—caused by the polar vortex which plunged millions in the Lone Start state in a chilly darkness this past week—illustrates to many on the Street the need to ramp up grid spending now.
Gordon Haskett analyst John Inch rates Eaton (ticker: ETN) shares Buy. “The recent widespread and prolonged power outages in Texas, in large part relatedto insufficient investment in the electrical grid over the years….highlights the significant degree to which the U.S. generally needs to invest in its aging electrical infrastructure,” wrote Inch in a Monday research report. That’s good news for Eaton, according to the analyst, who writes, “Eaton’s favorable position is magnified by its [roughly] 30% market share in the U.S. and Canada for electrical infrastructure.
His price target is $130. Eaton stock, however, is up 2.4% in Monday trading to almost $131 a share. Inch’s peers, however, a little more bullish. The average analyst price target is about $133. About 63% of analysts covering the company rate shares Buy. The average Buy-rating ratio for stocks in the Dow Jones Industrial Average is about 57%.
Construction firms, in addition, to equipment suppliers such as Eaton stand to benefit from an increased focus on the electricity grid.