Barclays raises Northwestern Corp. stock outlook to Overweight

On Thursday, Barclays (LON:BARC) made a notable adjustment to its assessment of Northwestern Corp. (NASDAQ:NWE), upgrading the utility company's stock from Underweight to Overweight, albeit with a reduced price target of $56.00, down from the previous $63.00.

The upgrade follows Northwestern Corp.'s announcement of securing a 50MW data-center customer scheduled for 2027, with expansion to 250MW expected by 2029. With a current market capitalization of $3.09 billion and trading at $50.44, InvestingPro analysis indicates the stock is trading above its calculated Fair Value, though it maintains a FAIR overall financial health score.

The analyst from Barclays highlighted that this new customer is significant for Northwestern's operations in Montana, given the company's peak system capacity of approximately 1,300MW in the state. This development is seen as a turning point for the company, which has historically underperformed in earning its Return on Equity (ROE) and has lagged behind its utility peers.

The analyst believes that the stock is currently the most affordable among small to mid-size utilities covered by Barclays, trading at 12.5 times its estimated 2027 earnings per share, which is a 13.5% discount compared to its peer group.

Despite the potential risk of a rate case in 2025, Barclays sees no equity needs for Northwestern Corp. over the next five years. The firm also points out that the company's dividend yield stands at an attractive 5.15%, which is higher than the average. This impressive yield is backed by a 20-year track record of consecutive dividend payments, as revealed by InvestingPro data.

Additionally, the analyst anticipates that Northwestern's management can deliver an average earnings per share compound annual growth rate (EPS CAGR) of 5-6%, with the potential for further upside from additional data center agreements that have not yet been factored into projections. The stock currently trades at a P/E ratio of 13.69, which InvestingPro identifies as relatively low compared to its near-term earnings growth potential.

Barclays has rolled its valuation forward to 2027 estimates, applying a 5% discount on earnings. With this new analysis, the firm foresees a 16% total return upside for Northwestern Corp. shares. This revised outlook reflects a more positive view on the company's financial trajectory, buoyed by the new data-center customer and the expected growth in the coming years.

For deeper insights into Northwestern's valuation metrics and 8 additional exclusive ProTips, including detailed financial health analysis and growth projections, investors can access the comprehensive Pro Research Report available on InvestingPro.

In other recent news, NorthWestern Energy Group reported its Q3 2024 financial results, with a GAAP diluted EPS of $0.76 and a non-GAAP diluted EPS of $0.65. The company revised its 2024 non-GAAP EPS guidance to $3.32 to $3.47, due to delays in interim rates in Montana. This recent development also included the announcement of a dividend of $0.65 per share and an increase in net income to $46.8 million, influenced by regulatory outcomes and higher transmission revenues.

NorthWestern Energy also highlighted the operational start of the Yellowstone County Generating Station and the allocation of $21 million for Colstrip transmission upgrades from a Department of Energy grant. Despite regulatory challenges, the company expects interim rate relief in Montana by the end of 2024.

Executives at NorthWestern Energy are also planning to update their Integrated Resource Plan by 2026, with ongoing litigation related to EPA's MATS rules potentially affecting operations. However, the company remains optimistic about future opportunities in generation and transmission.

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