Our world runs on electricity. From preparing and storing our food to manufacturing and washing our clothes, modern life grinds to a halt when the power fails. Now, with the accelerating adoption of electric vehicles and the rapid rise of AI technologies – both of which demand massive amounts of energy – our reliance on electricity is deeper than ever. This shifting landscape is pushing utility companies to expand their generation capacity and modernize infrastructure to meet growing needs.
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Amid this evolving energy landscape, Raymond James analyst James Weston is zeroing in on the players best positioned to benefit.
“Both the electric utilities and independent power producers (IPPs) stand to gain from today’s demand growth landscape: IPPs continue to see improvement in the value of existing assets, while electric utilities see capital program length and expansion,” Weston said. “Both will also have regulatory catalysts, including improved clarity on ‘rules of engagement’ with large loads (AI/data centers). Regulated will tack on ‘regular-way’ rate case dynamics, complicated by rising costs to ratepayers, concurrent with broader inflation.”
“Overall,” the 5-star analyst summed up, “relative improvements in rule-making, deal-making, and potential for improved pricing dynamics put the Independent Power Producers at the top of our list for now — there is simply more ‘torque’ in this group at a reasonably priced entry point.”
Following this logic, the Raymond James sector expert goes on to choose two utility stocks as ‘Strong Buys,’ and he is not alone – Weston’s choices have also picked up ‘Buy’ ratings from the Street’s analyst consensus. Let’s dip into the TipRanks database, and into the Raymond James comments, to find out what makes these utility stocks compelling investments today.
NRG Energy (NRG)
We’ll start with NRG, a large-scale utility company based in Houston, Texas, and serving residential, business, and industrial customers in multiple markets across the US and Canada. NRG offers a wide range of power and smart home services, boasting a total of 13 gigawatts of power generation along with an array of products designed to make power usage smarter and more efficient. The company’s customer base is more than 8 million strong, and NRG’s operations employ some 16,000 people.
On the power generation side, NRG’s portfolio is based on the two most plentiful fuels in the North American power industry: coal and natural gas. Regarding coal, NRG notes that the fuel is abundant and easy to store, making coal-fired power reliable in all conditions. Carbon capture and emission control technologies bring a modern take to this oldest of the industrial fuels.
Natural gas makes up a larger share of NRG’s portfolio, and for good reason. The fuel is, like coal, both abundant and affordable. While it is not as easily stored as coal, natural gas is cleaner burning and plays an important role in reducing carbon emissions in utility-scale power operations.
In an important move that will expand NRG’s power portfolio, the company announced this past May 12 that it had entered into a definitive agreement with LS Power to acquire that company’s natural gas generation facilities and its commercial and industrial virtual power plant. The transaction is valued at approximately $12 billion and will be conducted in both cash and stock. The companies expect to close the transaction during 1Q26.
The company’s service side includes a wide range of activities. The company can offer multiple ‘smart home’ plans that streamline home management for a busy lifestyle. NRG also offers residential and commercial electricity service, and customers can manage their power plans through a mobile app. Customers can even buy access to backup power generation. These services are also available in business plans, emphasizing fixed prices, load management, and sustainable and/or renewable power plans.
Turning to the company’s financial results, we find that NRG beat the forecasts on both revenue and earnings in the first quarter of this year. The company’s top line, of $8.59 billion, was up 15.6% year-over-year and $310 million better than had been expected. The bottom line figure, a non-GAAP EPS of $2.62, was 95 cents per share above the forecast. Shares in NRG are up 70% so far this year, significantly outperforming the S&P 500’s 1.7% gain.
For James Weston, laying out the Raymond James take on NRG, the key points are the utility’s solid existing portfolio and the upcoming LS Power transaction. He writes of the stock, “NRG Energy is a standout independent power producer, blending one of the largest retail electricity presences in the U.S. with the game-changing LS Power acquisition, expanding its natural gas generation across key markets and raising its long-term adjusted EPS CAGR from 10% to 14%… Championing an ‘additionality’ strategy, NRG pulls impressive levers for growth (e.g., brownfield sites, gas turbine JV, uprate and conversion opportunities, 3 TEF projects). This growth comes while maintaining financial flexibility with ~$1 billion in committed repurchases through the post-deal deleveraging period and accelerating thereafter.”
Getting to the nitty-gritty, Weston explains why this stock is a compelling buy, saying of it, “Despite leading the four-stock IPP peer group with a stellar >60% YTD gain, NRG still trails two peers since 1/1/24, offering what we believe is a compelling entry point for investors.”
Altogether, these comments back up the analyst’s Strong Buy rating, while his $195 price target points toward a one-year upside potential of 28%. (To watch Weston’s track record, click here)
NRG shares have a Moderate Buy consensus rating from the Street, based on 7 recent reviews that include 5 to Buy and 2 to Hold. The stock’s $152.64 trading price and $165 average target price together suggest an upside over the next 12 months of 8%. (See NRG stock forecast)
Vistra Energy (VST)
Next on our Raymond James-endorsed list is Texas-based Vistra Energy, a $61 billion power company – and the largest utility-scale power generation company operating in the US market. Vistra operates across the US, with activities ranging from Maine to California and approximately 5 million retail customers. The company controls a total capacity of some 41,000 megawatts of electric power generation, and employs more than 6,800 people maintaining its network of operations.
Vistra fuels its power generation from a wide range of sources, including natural gas, coal, nuclear, and solar. In addition, the company also controls battery energy storage facilities, keeping power available at all times. Vistra’s retail electric business is active in 16 states plus DC, and is backed up by an award-winning customer service segment.
Like NRG above, Vistra announced in May that it had entered into an agreement to acquire multiple power generation facilities. The acquisition agreement, with Lotus Infrastructure Partners, includes seven natural gas power generation facilities, with a total output of 2,600 megawatts of electricity. The acquisition, which is expected to close either late this year or during the early part of next year, carries a purchase price of approximately $1.9 billion.
During the last period reported, Q1 of this year, Vistra showed a top line of $3.93 billion in revenue. This figure was up 29% year-over-year, although it missed the forecast by $620 million. Vistra’s bottom line in the period came to a loss; the net loss from ongoing operations was reported as $200 million. That said, Vistra’s adjusted EBITDA still rose sharply, climbing 53% YoY to $1.24 billion. The company finished Q1 with $561 million in cash and cash equivalents, as part of its total liquidity of $3.9 billion.
In his write-up on Vistra, Weston describes a company with a sound footprint and solid prospects, writing, “VST runs a sizable thermal and nuclear IPP fleet and holds strong retail presence and has been a slight laggard to the group YTD. Historically, VST has been the beta trade on higher/lower electricity forwards, with the most torque in the subsector, a seemingly forgotten theme in today’s market that we like positioning for today. The broader market will be focused on Texas’s improving regulatory backdrop (SB 6 completion), hopefully unlock a data center PPA at Comanche Peak soon. Beyond that, with modest nuclear uprates and a light capex model, VST is a nice buybacks story. M&A tailwinds (recent Lotus deal) rounds out the offering.”
Based on this stance, Weston goes on to rate VST as a Strong Buy. He gives the stock a price target of $216, suggesting that the shares will gain 19% in the year ahead.
The 9 recent analyst reviews on VST break down 8 to 1 favoring Buy over Hold, for a Strong Buy consensus rating. Vistra’s $181.13 trading price and $191.88 average price target together imply a one-year upside of 6%. (See VST stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.