Talen Energy Corporation (TLN): Among the Best Utility Stocks to Buy According to Analysts

Yahoo

19-04-2025

We recently published a list of 13 Best Utility Stocks to Buy According to Analysts. In this article, we are going to take a look at where Talen Energy Corporation (NASDAQ:TLN) stands against other best utility stocks to buy according to analysts.
Utility stocks represent companies primarily engaged in providing electricity, natural gas, and water distribution services, which are considered essential for households and most businesses. These companies are characterized by stable revenue streams, regulated operations, and often predictable earnings, making them attractive investment opportunities for risk-averse investors or those seeking steady income through dividends. The utility stocks are typically low-growth, as they operate in mature and well-established markets that only grow according to demographic trends, which are typically in low single digits. For these reasons, many investors have overlooked this sector, especially considering that it comprises less than 3% of the entire US stock market capitalization, making it relatively insignificant.
Despite its drawbacks, the utility sector becomes particularly appealing during periods of economic uncertainty or downturns, as the defensive nature of their business allows them to deliver more consistent returns and often hold their value while the overall market declines. With the broader market currently entering its first death-cross since 2022, the question of hedging one's portfolio with defensive stocks becomes increasingly more relevant. There are solid reasons to believe that, similar to 2022, when a 12-month-long bear market kicked in with the emergence of a death-cross on the technical chart, the US stock market will now enter a prolonged bear market as well.
READ ALSO: 12 Best Electric Utility Stocks to Buy Now
First of all, it is well-known that the current market correction has been fueled by the Trump Tariff Turmoil, which cast a lot of uncertainty on consumption, Capex projects, and overall spending outlook in the US. We believe, however, that the root cause of President Trump's action represents the attempt to normalize the country's budget deficits, which have become critical in the last months. The US budget for 1H 2025 has been released, and it shows $2.3 trillion in tax revenues, $3.6 trillion in expenditures, for a total $1.3 trillion deficit. More importantly, the interest payments on the massive public debt represent a whopping ~26% of total tax revenue. To balance the budget, taxes would have to rise by an astounding 57%, or spending would have to be cut by 36%, both of which seem completely unrealistic in the current reality.
This leads to the possibility that $390 billion worth of tax cuts that expire this year will not be extended. Also, the previously promised tax cuts seem very unlikely – this was an important card in the President's sleeve, which now seems unlikely to be played any time soon. In this context, the current administration has no means to provide any short-term boost to corporate earnings if the market dips too low. Under such a scenario, utility stocks appear like a safe haven to safeguard one's funds while earning a solid dividend yield, which most of the companies provide.
Besides its defensive nature, the utility sector entered a period of acceleration in the business – the sector's outperformance actually started at the beginning of 2024 due to the AI megatrend. Fidelity claims that there is a once-in-a-generation opportunity with utility stocks as their previous anemic 1-2% growth has the potential to increase to 6-8% over the next 10 years, which will also provide a substantial expansion in their valuation multiples. The main driver of this expected acceleration is coming from AI:
'The rapidly developing technology of artificial intelligence is proving to be a significant boost to predicted energy demand over the next decade. AI requires immense computational power, storage space, and low-latency networking for training and running models. These applications are usually hosted in data centers. As AI continues to become more ubiquitous, the energy demands from data centers will grow exponentially, which I believe will translate to higher earnings growth for certain utilities. Driven by these trends, energy demand is forecasted to grow over 38% over the next 2 decades. Regulated utilities will need to build new power plants to satisfy this surge in demand. Deregulated utilities should also benefit. As reserve margins are tightening, power prices for existing energy should also increase.'
All in all, the key takeaway for readers is that the utility sector is favored by both its defensive nature as well as the large-scale acceleration in electricity demand due to the AI trend. Consequently, we are currently at an opportune moment to invest in the best utility stocks.
Photo by Frédéric Paulussen on Unsplash
To compile our list of best utility stocks, we use a stock screener to filter for utility stocks with positive average upside from sell-side analysts as of April 16. Then we included in the article the top 13 stocks with the largest average analysts' upside. For each stock, we also included the largest number of hedge funds that own the stock as of Q4 2024, as per Insider Monkey's database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points ().
​Talen Energy Corporation (NASDAQ:TLN) is an independent power producer and energy infrastructure company that owns and operates approximately 10.7 gigawatts of power generation across the US. Its fleet comprises nuclear, natural gas, coal, and oil-fired facilities primarily situated in the Mid-Atlantic region and Montana, where it sells electricity into wholesale US power markets. With a 27.85% average analysts' upside, TLN is one of the best utility stocks included on our list.
Talen Energy Corporation (NASDAQ:TLN) delivered strong financial results in 2024, generating $770 million in adjusted EBITDA and $283 million in adjusted free cash flow, while achieving record levels of safety and reliability. The company has reaffirmed its 2025 guidance with an adjusted EBITDA range of $925 million to $1.175 billion and an adjusted free cash flow range of $395 million to $595 million. The company's financial position is further strengthened by approximately $1.2 billion of liquidity, with over $470 million of cash on the balance sheet and a net leverage ratio of 3.3x for 2024.
Talen Energy Corporation (NASDAQ:TLN) continues to execute on its AWS contract signed in March 2024, with the site currently being electrified and generating revenues. The company secured a reliability-must-run agreement that extends the life of Brandon Shores and Wagner plants through May 2029, providing annual payments of $145 million for Brandon Shores and $35 million for Wagner, plus reimbursement for variable costs and project investments. Since the start of 2024, the company has demonstrated its commitment to shareholder returns by repurchasing approximately 13 million shares, or 22% of outstanding shares, returning nearly $2 billion of capital to shareholders, representing 75% of the market cap since its emergence.
Overall, TLN ranks 4th on our list of best utility stocks to buy according to analysts. While we acknowledge the potential of WTRG to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than TLN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.