AltaGas named TD’s top pick in electrification-fueled utility sector

Investing.com -- TD (TSX:TD) Cowen has initiated coverage on the Canadian utility sector, highlighting increased investor emphasis on electricity-centric businesses amid accelerating electrification trends. The firm named AltaGas Ltd (TSX:ALA) as its top pick, citing unmatched earnings growth potential and valuation upside despite its 100% gas-weighted utility operations.

The Friday report, led by analyst John Mould, assigns BUY ratings to AltaGas, Fortis Inc (TSX:FTS), and Emera Incorporated (TSX:EMA), while outlining a strategic bias toward companies with regulated electric utility exposure. “AltaGas offers investors the potential for attractive valuation expansion (~2 turns) and the highest EPS growth among the Canadian utility group,” the note stated, projecting a three-year compound annual growth rate (CAGR) of 8%.

TD Cowen’s valuation framework applies target multiples informed by a proprietary scorecard, weighing scale, growth expectations, asset mix and regulatory environment. The report underscores that jurisdiction plays a critical role, with some regions, particularly Florida, where Emera has deep operations, offering more constructive market dynamics.

While electrification benefits utilities broadly, electricity-weighted firms are seen as more aligned with long-term macro trends, including data center load growth, re-shoring of manufacturing, and decarbonization mandates. “We believe that secular electrification trends favour the opportunity set for electric utilities and support premium valuations,” the report noted.

Despite the broader thematic preference for electric exposure, AltaGas stands out partly due to its derisked midstream operations and exposure to broader Canadian energy developments. Its utility model, though gas-focused, is paired with a midstream business that has been stabilized through more predictable contracting and tolling agreements.

Fortis (NYSE:FTS) also received high marks for diversification and regulatory stability, with operations spanning multiple jurisdictions and a strong electricity footprint. TD Cowen concluded, “Fortis scores in the top three in all categories as a result of its group-leading track record and an asset base that is both weighted towards electricity and arguably the most diversified across jurisdictions.”

As Canada’s energy landscape evolves, TD Cowen sees a favorable backdrop for utility valuations to expand, driven by enduring electrification and supportive regulatory frameworks. Investors, the firm argues, should focus on names with strong jurisdictional positioning and growth visibility, traits that underpin its preference for AltaGas, Fortis, and Emera in a sector poised to power forward.