Alliant Energy

Alliant Energy reported second-quarter operating earnings per share of $0.65, compared with $0.68 from the same year-ago period, putting the company on track to meet our and management's full-year expectations.

Why it matters: Capital investments at subsidiaries WPL and IPL supported earnings. Higher operating costs, unfavorable weather, and expense timing offset those benefits. Management reaffirmed 2026 EPS guidance of $3.36 to $3.46, trending toward the upper half, in line with our expectations. Alliant reaffirmed its 7%-plus annual earnings growth target in 2027-29. We continue to expect more than 8% growth beyond 2028 supported by data center development.

The bottom line: We are maintaining our $77 per share fair value and narrow moat rating for Alliant. Alliant's stock trades at an 8% discount to our fair value estimate in a sector we view as 2% overvalued as of July 31, making it one of the cheapest utilities in our coverage. We think the market fails to appreciate Alliant's ability to secure additional data center opportunities, supported by constructive regulation in Iowa and Wisconsin and strong management execution.

Long view: Alliant's four-year $13.4 billion capital investment plan remains unchanged. However, the plan only incorporates 3 gigawatts of new generation and none of the potential 2-4 GW set to ramp in 2029 or later. Management also noted there is more than 4 GW of additional demand at various stages of exploration, but beyond the current planning period, highlighting the continued long-term growth opportunities. Alliant's data center demand is now 3.4 GW, representing a 60% increase in demand by 2031. We continue to expect management to execute on much of the 2-4 GW with start dates of 2029 or later.

Coming up: We expect management to provide additional detail regarding data center opportunities and roll forward its capital investment plan later this year.

Our fair value estimate is $77 per share, reflecting year-to-date financial results and regulatory updates.

Our near-term profit outlook accounts for recently approved rate increases, completed generation projects, normal weather, and a gradual improvement in power demand.

We estimate that Alliant will invest $17.8 billion in 2026-30.

Based on this investment outlook, we expect Alliant's long-term annual earnings growth to reach the top end of management's 5%-7% forecast from 2026-27 and exceed management's 7%-plus growth through 2029. We expect continued constructive regulatory outcomes throughout our forecast.

In our discounted cash flow valuation, we use a 5.8% cost of capital based on a 7.5% cost of equity. This is lower than the 9% rate of return we expect investors will demand for a diversified equity portfolio, reflecting Alliant Energy's lower sensitivity to the economic cycle and lower degree of operating leverage.

We recently lowered our cost-of-capital assumption to reflect modest adjustments to our risk-free rate assumption. Our assessment of the company's business risk is unchanged.

We assign Alliant Energy a narrow moat rating.

Service territory monopolies and efficient-scale advantages are the primary sources of economic moat for regulated utilities. State and federal regulators typically grant regulated utilities exclusive rights to charge customers rates that allow the utilities to earn a fair return on and a return of the capital they invest in building, operating, and maintaining their distribution networks.

In exchange for regulated utilities’ service territory monopolies, state and federal regulators set returns at levels that aim to minimize customer costs while offering fair returns for capital providers. We believe Alliant Energy has healthy relationships with the regulators in its two main states, Iowa and Wisconsin, as exemplified by mechanisms that allow the firm to more closely earn its allowed return on equity.

This implicit contract between regulators and capital providers should, on balance, allow Alliant to earn greater than its cost of capital, though observable returns might vary in the short run based on demand trends, investment cycles, operating costs, and access to financing.

Intuitively, utilities should have an economic moat based on efficient scale, but in some cases, regulation offsets this advantage, preventing excess returns on capital. The risk of adverse regulatory decisions prevents regulated utilities from earning wide economic moat ratings. However, the threat of material value destruction is low, and normalized returns exceed costs of capital in most cases, leaving us comfortable assigning narrow moat ratings to many regulated utilities.

Alliant's earnings growth prospects are robust based on regulatory support for renewable energy projects and economic development.

Regulators in Iowa and Wisconsin are embracing renewable energy, providing additional growth opportunities with favorable rate-making.

The company operates in constructive jurisdictions, supporting returns and capital investments, including serving data centers' energy needs.

Alliant's aggressive investment plan increases regulatory risk.

If the economy slows in Alliant's major markets—Iowa and Wisconsin—customer and load growth could slow.

As with all regulated utilities, rising interest rates will raise financing costs and could make the dividend less attractive for income investors.