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Duke Energy (NYSE:DUK) +0.6% and Chesapeake Utilities (NYSE:CPK) +2.4% in Wednesday's trading as RBC Capital upgraded the utilities to Outperform from Sector Perform with $113 and $123 price target, respectively, raised from $101 and $111.
Duke Energy (DUK) enters 2024 "from a position of strength, with a 100% regulated portfolio, premium regulatory constructs backing up EPS reliability, and a strengthening balance sheet," and the company's top markets Florida and North Carolina are two of the most constructive regulatory environments in the U.S., RBC analyst Shelby Tucker said.
While Duke Energy (DUK) was one of the sector's top performers in 2023, Tucker believes it will trade in line or close to premium peers in 2024, noting the company achieved constructive regulatory outcomes with multi-year rate plans in North Carolina, boosting earnings visibility.
On Chesapeake Utilities (CPK), Tucker touted "management's record of successful M&A," seeing the Florida Gas acquisition as accretive over the long term, adding the now finalized funding source removes the uncertainty surrounding the scale of potential equity dilution.
More broadly, RBC expects the utilities sector (XLU) will recover from a terrible 2023 performance, although a potential scenario of rate cuts, lower inflationary pressure, and a soft landing may keep the stock recovery in check.
RBC tapped PG&E (PCG) as its top pick in the sector, believing management is changing the narrative to a safety-first culture that could lead to a higher valuation.
Among renewable names, RBC said it favors NextEra Energy (NEE) and AES Corp. (AES), and for investors seeking a more defensive posture, the bank likes Duke Energy, American Water Works (AWK) and Southern Co. (SO)