J.P. Morgan's Stock Picks in the Power Sector Amid Regulatory Uncertainty

J.P. Morgan analyst Jeremy Tonet maintains a positive outlook on the power sector, describing it as "washed out" despite prevailing bearish sentiments. His optimism can be attributed to strong demand growth spurred by wide-ranging electrification trends, industrial onshoring, and heating needs. However, he also acknowledges that regulatory uncertainty plays a significant role in shaping market dynamics.

Talen Energy Corporation

Tonet has reaffirmed an Overweight rating on Talen Energy Corporation (TLN), while revising the price target down from $295 to $265. The analyst emphasizes that Talen operates primarily as a PJM generator with a gas-heavy fleet, which positions it well to leverage PJM pricing trends alongside expected demand growth. Furthermore, Talen’s long-term partnership with Amazon concerning the Susquehanna deal is projected to yield notable near-term EBITDA growth, especially if Talen expands its offered capacity beyond 960 megawatts. With promising EBITDA growth anticipated for 2025 and 2026, alongside a robust balance sheet and capital flexibility, potential exists for Talen to narrow its valuation gap compared to peers, particularly if outcomes from the ISA resolution and Susquehanna expansion are favorable. As of the last check, TLN shares fell by 2.81%, trading at $197.09.

Constellation Energy Corporation

Tonett has also reiterated an Overweight rating for Constellation Energy Corporation (CEG), while reducing the price forecast from $358 to $311. The analyst notes that key drivers for Constellation’s performance will include progress in behind-the-meter (BTM) operations, the successful integration of its acquisition of Calpine (which involves PJM asset sales), and potential gas generation contracting opportunities once the Calpine deal is finalized. Despite initial doubts regarding the dilution of carbon-free assets, Tonet remains optimistic about gas generation and contracting opportunities, pointing out that these elements can help Constellation capitalize on beneficial trends in power supply and demand favorable to Independent Power Producers. CEG shares decreased by 2.06% to $204.89 by the latest update.

Vistra Corp

With respect to Vistra Corp (VST), Tonet has maintained an Overweight rating while lowering the price target from $203 to $186. The analyst indicates that rising oil prices are likely to boost the activity of Permian producers, resulting in a natural gas oversupply that will keep Waha prices low. Vistra Energy, significantly tied to the Texas power market, is well-placed to take advantage of spikes in power prices, increased base load demand, and anticipated supply gaps by 2030. Additionally, Vistra’s large retail segment, hedging strategies, and nuclear exposure via its Energy Harbor acquisition are expected to mitigate earnings volatility and support double-digit EBITDA growth. As of the last check, VST shares saw a marginal decrease of 0.15%, trading at $119.13.

JP Morgan, Power, Energy