OGE Energy

OGE Energy reported earning $0.56 per share during the second quarter, up from $0.53 during the second quarter of 2025. Results are on track to meet our and management's full-year outlooks.

Why it matters: Earnings in the quarter were up year over year primarily due to warmer weather that added $0.03 in the quarter relative to normal weather. Higher financing and operating costs were partial offsets. We continue to assume 6% average annual earnings growth, in line with management's 5%-7% target. Our 2026 EPS estimate is in line with management's $2.38-$2.48 guidance. OGE on May 1 filed for regulatory approval its contract with Google to serve a planned 1-gigawatt data center. This facility could represent more than 10% of OGE's total system demand by 2031.

The bottom line: We are reaffirming our $44 per share fair value estimate and narrow moat rating for OGE Energy. OGE's stock trades at a 12% premium to our fair value estimate as of July 29. OGE's stock is one of the top-performing utilities this year with an 18% year-to-date return, including dividends.

Big picture: OGE plans to invest $7.3 billion in 2026-30. We expect management to increase this plan during the next few quarters to include large projects such as the Frontier battery project that has regulatory preapproval, high-voltage regional transmission projects, and nearly 2 gigawatts of generation that should receive regulatory preapproval early next year. One June 17, OGE filed with Oklahoma regulators for a large-load tariff proposal consistent with state legislation HB 2992 that Gov. Kevin Stitt signed earlier this year. Although the tariff includes strict financial commitments, we think the regulatory certainty could attract more interest from data centers seeking faster speed to power than other utilities offer.

Coming up: OGE plans to file a rate review in Oklahoma in the coming months. This would be OGE's first base rate review in Oklahoma since 2024.

Our fair value estimate is $44 per share after incorporating recent financial performance and operational updates.

We forecast 6% average annual weather-normalized earnings growth for at least the next four years, in line with management's growth target. Most of this is based on management's plan to invest at least $1.5 billion annually to expand and strengthen the electric grid.

Industry-leading electricity demand growth in OGE's service territory is spurring the need for new investment.

Core earnings growth should follow rate base growth as OGE receives constructive regulatory outcomes for its large investment projects. Long-term electricity usage growth topping 3% annually also supports our earnings growth outlook.

We assume a 6.8% cost of equity, which is below the 9% rate of return we expect investors to demand of a diversified equity portfolio, given OGE's lower sensitivity to the economic cycle following the divestiture of its midstream investment. Our 5.7% cost of capital incorporates a normalized long-term real interest-rate environment and normalized credit spreads.

OGE's service territory monopolies and efficient scale advantages are the primary reason we give OGE a narrow economic moat rating.

State and federal regulators grant OGE exclusive rights to charge its Oklahoma and Arkansas customers rates that allow it to earn a fair return on and return of the capital it invests to build, operate, and maintain their infrastructure. In exchange for OGE's service territory monopolies, state and federal regulators set customer rates at levels that aim to minimize customer costs while offering fair returns for capital providers.

This implicit contract between regulators and capital providers should, on balance, allow OGE to earn returns at least in line with its cost of capital for at least the next decade. Realized returns might vary in the short run based on demand trends, investment cycles, operating costs, and access to financing. OGE's fast-growing local economies support constructive relationships with regulators, the most critical component of a regulated utility's moat.

Rate regulation in Oklahoma has become more constructive since 2019. Oklahoma Gas & Electric has reached three constructive rate settlements in 2020, 2022, and 2024 supporting its growth investments. Settlements typically indicate widespread support for the utility's investment plan and fair returns for investors.

In September 2019, the Oklahoma Corporation Commission approved a settlement for environmental upgrades at the Sooner coal-fired plant and natural gas conversions of coal units at the Muskogee coal plant. OG&E had been seeking approval for these investments for a decade.

Before the 2019 decision, we considered Oklahoma one of the most challenging regulatory jurisdictions in the US. In December 2015, the OCC denied OG&E's request for preapproval of the $1 billion environmental compliance plan that included installing scrubbers at the Sooner plant. That hotly debated decision took 16 months and signaled strained regulatory relationships in Oklahoma.

In March 2017, OG&E received a disappointing OCC decision that required customer refunds after being granted a fraction of the rate increase the utility had requested.

OGE's much-smaller utility in Arkansas and OGE's interstate transmission projects benefit from more constructive rate regulation, including formula-based ratemaking that adjusts customer rates every year based on investments and operating costs.

OGE's exit from the commodity-sensitive no-moat midstream business in 2022 supports our narrow moat rating.

OGE is making progress improving Oklahoma regulation so that it can execute its growth investment plan while continuing to grow the dividend.

Although we expect the dividend to grow only 1% annually for the next few years, investors still should benefit from growing earnings.

The economy in OG&E's service territory is healthy and annual customer growth exceeds 3%, higher than most electric utilities.

Oklahoma's three-person, publicly elected utilities commission structure creates more regulatory risk than other utilities face.

OGE has a larger share of energy sector customers than most electric utilities, leaving OGE indirectly exposed to energy supply and demand fundamentals.

Inflation and higher interest rates could depress stock prices for utilities like OGE as investors look for more attractive yields elsewhere.