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Evergy reported adjusted earnings per share of $0.88 for the second quarter, up from $0.82 in the same year-ago quarter. Earnings are on track to reach our full-year forecast and management's guidance range.

Why it matters: Higher revenue from customer demand growth, including new large-load customers, partially offset higher operating and investment costs during the quarter. Management reaffirmed its $4.14-$4.34 EPS guidance range for 2026, in line with our forecast, assuming normal weather. Evergy has five signed data center development contracts totaling 2.5 gigawatts with another 500 megawatts of new large industrial load. New laws in Kansas and Missouri allow Evergy to charge data centers premium prices, supporting accelerating earnings growth as the data centers ramp up during the next three to five years.

The bottom line: We are reaffirming our $80 fair value estimate and narrow moat rating for Evergy. Evergy's stock trades in line with our fair value estimate and our US utilities sector median valuation as of Aug. 6. Management reaffirmed its 6%-8% annual earnings growth target through 2028 and suggested growth could top that rate beyond 2028 as contracted data centers ramp up and additional data centers locate in Evergy's service territory. This is in line with our outlook.

Big picture: Management reaffirmed its five-year $21.6 billion capital investment plan announced earlier this year. Additional new large-load customers could add 5% or more to that plan.

Coming up: Evergy recently filed integrated resource plan updates in Missouri and Kansas. The outcome of the regulatory proceedings will in part guide Evergy's growth investments during the coming years. Evergy management said it expects to sign at least one more data center agreement later this year from its 2 GW-2.5 GW new customer pipeline. Full ramp and earnings from these and other projects in advanced discussions would extend growth well beyond 2030.

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Our fair value estimate is $80 per share after incorporating recent financial performance, regulatory updates, and data center development announcements.

We assume Evergy invests $22 billion in 2026-30, in line with management's plan. This supports our 7% average annual earnings growth forecast accelerating to over 8% beyond 2028, in line with management's 6%-8% target. Our forecast includes Evergy's new generation projects that state regulators have approved and premium rates for new large-load customers as they ramp up.

We also expect electricity demand growth in Evergy's service territories to remain higher than the national average for at least the next four years, primarily because of new industrial customers such as data centers. Growing demand should ease some pressure from customer rate increases.

Evergy must continue appealing to regulators for rate increases to support its long-term investment plan. Regulatory settlements in Kansas in late 2023 and in 2025—its first base rate changes since the merger—were in line with our forecasts. Recent Kansas and Missouri legislation should further boost Evergy's earned returns as its growth investment peaks.

We use a 5.9% cost of capital in our discounted cash flow valuation, which incorporates a 7.0% cost of equity. This is lower than the 9% rate of return that we expect investors will demand of a diversified equity portfolio.

We believe Evergy has a narrow economic moat. Its mix of federally regulated transmission assets and state-regulated generation and distribution assets gives Evergy an efficient scale competitive advantage.

Missouri and Kansas regulation has improved enough that we now have confidence Evergy can earn and maintain returns on capital greater than its cost of capital for at least the next 10 years.

In Kansas, legislation in 2024, support for new generation investments, and base rate settlements in 2023 and 2025 were mostly constructive developments. This should boost earned returns.

In Missouri, several rounds of legislation during the last decade have improved Evergy's ability to recover operating costs and capital investments, boosting earned returns. Legislation in 2018 allows utilities to defer 85% of depreciation expense on qualified capital improvements and receive a return on this investment equal to the weighted cost of capital in the preceding rate case. Legislation in 2025 enhances recovery of costs for certain large investments.

Regulators in Kansas and Missouri have worked together to ensure that Evergy has the financial resources and rate structures to support infrastructure investment that will attract large businesses such as data centers.

We believe electric transmission is a wide-moat business due to its efficient scale competitive advantage and favorable regulatory framework at the Federal Energy Regulatory Commission.

Evergy's 2.5 GW of data centers with signed agreements and under construction is one of the largest of any US utility relative to its size.

Evergy's operating cost savings and premium rates for data centers are helping offset customer bill increases related to capital investments.

Recent legislation has improved ratemaking structures in Missouri and Kansas. This should reduce regulatory lag and boost earnings growth.

Evergy must find ways to limit customer rate increases while retiring coal plants and investing in more renewable energy and natural gas generation.

Evergy's base rate settlements in Kansas in 2023 and 2025 are based on implied returns on equity at the low end of the 9.5%-10% range that regulators use for utilities in other states.

Rising interest rates can be headwinds for utilities as higher debt costs slow earnings growth and dividend yields are less attractive compared with fixed-income alternatives.