There's a New Stock to Play the AI Boom and Electricity-Grid Modernization -- Barrons.com

Dow Jones12-04

Al Root

The boom in AI data centers and what that means for electricity demand has been a big theme for investors in 2024. Now there is another stock to play the trend.

Wednesday, Oppenheimer analyst Ian Zaffino launched coverage of engineering and construction firm Everus Construction with a Buy rating and $70 price target. Everus stock was up 1.5% in early trading at $66.47, while the S&P 500 and Dow Jones Industrial Average were up 0.4% and 0.6%, respectively.

The company, spun out of MDU Resources on Nov. 1, calls itself a leading provider of construction services. It serves electrical markets including transmission and distribution. Sales generated over the past 12 months total about $2.4 billion, which is about one-tenth the amount at the engineering and construction firm Quanta Services.

"Under-levered and no longer capital-starved, it can take full advantage of numerous tailwinds, including data centers, grid modernization, on-shoring, and energy transition," wrote Zaffino.

He sees earnings before interest, taxes, depreciation, and amortization, or Ebitda, growing to $241 million by 2026, up from $227 million in 2024. He values the company at about 16 times estimated 2026 Ebitda, while Quanta trades for about 19 times.

Everus starts life with debt of about 1.3 times Ebitda, while a ratio of about two times is typical. Investors don't usually take note until debt is three times projected Ebitda.

Everus is another way among many to play the electrification trend. Through early trading Wednesday, shares of electrical hardware and software suppliers Eaton and Schneider Electric were up about 56% and 37% year to date, respectively.

Quanta stock was up about 56%. Shares of data-center infrastructure provider Vertiv were up about 173%. And shares of Talen Energy and Constellation Energy, power companies contracting with data-center operators, were up 246% and 118%, respectively.

Shares of the power turbine and grid technology company GE Vernova were up roughly 140% from prices seen around its April 2 spinoff from GE Aerospace.

Vernova shares were up 2% in early trading at $338.39 apiece. Wolfe Research analyst Nigel Coe launched coverage of the stock on Wednesday with a Buy rating and a price target of $403.

"With great power comes great opportunities," wrote Coe, adding the company is leading the energy transition with top-three industry positions in wind-power turbines, natural-gas power turbines, and transmission and distribution technologies.

Vernova, like Everus, is another way to play the electrification trend.

Write to Al Root at allen.root@dowjones.com

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December 04, 2024 10:45 ET (15:45 GMT)

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