PPL vs. AEE: Which Utility Stock Offers More Growth Potential?

The Zacks Utility -Electric Power industry offers a compelling case for stable, long-term income due to its regulated framework. These regulations enable utilities to recover costs and generate consistent returns, helping to minimize earnings volatility. With electricity demand remaining steady through various economic conditions and the sector offering attractive dividend yields, utilities represent a dependable, defensive choice for income-oriented investors.In the United States, electric utilities are moving beyond their traditional role as income providers, propelled by the transition to clean energy. Major investments in grid modernization, renewable energy integration and electrification. Federal incentives and climate initiatives are transforming the utilities industry. Utilities at the forefront of this shift are well-positioned for sustained growth, providing investors with a relatively low-risk opportunity to participate in the expanding green energy landscape. PPL Corporation PPL and Ameren Corporation AEE are prominent regulated electric utilities operating in the Midwest and Eastern regions. They serve millions of customers and are actively investing in grid modernization and renewable energy initiatives.PPL Corporation is a regulated utility focused on infrastructure upgrades and clean energy, offering stable cash flows and reliable dividends. The company benefits from predictable revenues due to its regulated nature, which supports consistent dividend payouts and financial stability. With investments in grid reliability, sustainable energy and decarbonization, a strong balance sheet, and supportive regulatory conditions, PPL is well-positioned for steady earnings growth and long-term value.Ameren Corporation is a regulated electric and natural gas utility serving Missouri and Illinois, offering stable cash flows and a reliable dividend yield. Courtesy of a constructive regulatory environment and a long-term capital investment plan, the company is focused on grid modernization and clean energy transition. Its prudent financial management, strong credit ratings, and visibility into future capital expenditures make it attractive to investors.Both PPL Corporation and Ameren Corporation are stable players in the utility sector. Let’s take a closer look at their fundamentals to compare and identify which stock presents a more attractive investment opportunity for investors.PPL & AEE’s Earnings Growth ProjectionsThe Zacks Consensus Estimate for PPL’s earnings per share in 2025 and 2026 reflects a year-over-year growth of 7.69% and 8.24%, respectively. Long-term (three to five years) earnings growth per share is pegged at 7.46%.PPL's Earnings EstimatesImage Source: Zacks Investment ResearchThe Zacks Consensus Estimate for AEE’s earnings per share in 2025 and 2026 indicates year-over-year growth of 6.48% and 7.61%, respectively. Long-term (three to five years) earnings growth per share is pegged at 6.95%.AEE's Earnings EstimatesImage Source: Zacks Investment ResearchReturn on Equity (ROE)ROE is an essential financial indicator that evaluates a company’s efficiency in generating profits from the equity invested by its shareholders. It demonstrates how well management is utilizing the capital provided to increase earnings and deliver value. PPL’s current ROE is 9.14% compared with AEE’s ROE of 10.40%. AEE outperforms the industry’s ROE of 10.13%.Debt to CapitalThe Zacks Utilities sector is a capital-intensive one, and huge investments are required at regular intervals to upgrade, maintain and expand operations. The usage of new evolving technology also requires investments. So, the utilities borrow from the market and add it to their internal cash generation to fund their long-term investments.PPL’s debt-to-capital currently stands at 52.71% compared with AEE’s debt-to-capital of 59.78%. PPL is utilizing lower debt to fund its business, as the industry’s debt-to-capital stands at 54.57%.PPL & AEE’s Dividend YieldDividends are regular payments made by a company to its shareholders and represent a direct way for investors to earn a return on their investment. They are an important indicator of a company’s financial health and stability, often signaling strong cash flow and consistent earnings. Utilities are known for regular dividend payments to their shareholders.Currently, the dividend yield for PPL Corporation is 3.19%, while the same for Ameren Corporation is 2.98%. PPL’s dividend yield is higher than its industry’s yield of 3.17%.ValuationPPL Corporation currently appears to be a tad cheaper compared with Ameren Corporation on a Price/Earnings Forward 12-month basis. (P/E- F12M).AEE is currently trading at 18.75X, while PPL is trading at 18.19X compared with their industry’s 15.13X.Long-Term Capital Expenditure PlansCapital expenditure is critical in the sector, as it drives infrastructure development, system reliability, and long-term growth. Utilities must consistently invest in power generation, transmission, and distribution networks to meet rising demand, integrate renewable energy sources, and comply with evolving regulatory standards. PPL Corporation plans to invest nearly $20 billion in the 2025-2028 period to strengthen its infrastructure and add more clean electricity generation assets. Ameren Corporation plans to invest $27.4 billion in the 2025-2029 period to strengthen its electric transmission, distribution and generation infrastructure. Both companies have strong capital investment plans, and the decline in interest rates will lower the capital servicing expenses and be beneficial to both companies.ConclusionPPL offers a balanced mix of income and long-term value appreciation potential through its rising earnings estimate and stable dividend.PPL and AEE currently carry a Zacks Rank #3 (Hold) each. Our pick is PPL due to its cheaper valuation and lower debt level compared with Ameren.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report PPL Corporation (PPL): Free Stock Analysis Report Ameren Corporation (AEE): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks