Jefferies Names Top Power and Utility Stocks for Fall

Jefferies named 10 North American power, utility and energy-infrastructure top picks, led by Entergy, NiSource and Xcel Energy, citing data-center power demand and defensive positioning. The firm sees potential upside to consensus estimates for Entergy from additional data-center announcements within six months, while NiSource could secure Microsoft or another major generation customer by its Q3 2026 earnings call. Other catalysts include Xcel's favorable valuation, Ameren's 8%-plus outlook, NRG's high-teens 2029 free-cash-flow yield and NextEra Energy Partners' potentially strong November guidance update.

Analysis

The investable distinction is not “data-center exposure” but the ability to convert prospective load into regulated rate base without transferring construction, fuel, and curtailment risk to equity holders. ETR and AEP have the largest potential earnings torque if large-load contracts become binding, but their upside is also most vulnerable to commission scrutiny over cost allocation and reliability upgrades. AEE offers lower-beta compounding: its less concentrated hyperscaler dependence reduces the risk that a delayed customer announcement forces a growth-rate de-rating.

MTZ is the cleaner second-order beneficiary because electrical interconnection and inside-the-fence buildout are required regardless of whether the ultimate power source is gas, nuclear, or renewables. Its margin opportunity depends on labor availability and project execution, however; backlog growth without improving EBITDA conversion would undermine the rerating case. WMB and NRG provide alternative exposure to the same power-demand theme, with WMB benefiting from gas-delivery optionality and NRG from capacity scarcity, but both are more exposed than regulated utilities to commodity and power-price volatility.

Near term, this is primarily an analyst-driven positioning catalyst rather than an earnings revision event; broad utility multiples remain rate-sensitive, so higher Treasury yields can overwhelm company-specific load-growth narratives. Over 1-3 months, signed contracts, state commission filings, and capex-plan revisions are the key evidence points. Over 6-18 months, the market will differentiate utilities that secure customer-funded infrastructure and adequate returns from those committing capital before demand and regulatory recovery are contractually locked.

Consensus may be underestimating the bottleneck premium in transmission, substation, and behind-the-meter work while overpaying for uncontracted utility load forecasts. The most important falsifier is a pattern of announced data-center projects without corresponding regulated capital-plan increases, take-or-pay provisions, or upward EPS guidance; that would expose current valuations as option value rather than funded growth.

Key Decisions for Investors

• Initiate a 3-6 month long MTZ / short XLU pair on a 1:1 beta-adjusted basis. Target a 10-15% relative return as data-center electrical backlog and acquisition synergies are reflected in estimates; exit if MTZ does not show backlog growth and margin progression at the next earnings report, or if project labor costs compress EBITDA margins.
• Accumulate AEE on rate-driven weakness rather than chase data-center headlines; target a 6-12 month hold. The thesis is defensive 8%+ earnings compounding with less binary hyperscaler dependence, with risk defined by a Missouri regulatory outcome that reduces authorized returns or materially slows rate-base growth.
• Maintain ETR as a smaller, event-driven long only ahead of independently confirmed large-load announcements or capex guidance. A signed, creditworthy customer contract could drive estimate revisions over the next two quarters, but reduce exposure if commitments lack customer cost-sharing or if regulatory filings indicate material dilution to existing ratepayers.
• Use WMB as the preferred energy-infrastructure hedge against power-demand growth versus a directional NRG long. Favor a 6-12 month long WMB / short NRG relative trade if gas and power volatility rises; close if contracted pipeline-growth visibility fails to improve or if capacity-market pricing materially strengthens NRG's free-cash-flow outlook.
• Set a sector risk trigger on the 10-year Treasury yield and utility relative performance: if yields rise sharply while XLU breaks below its prior 3-month low, defer new regulated-utility entries. In that regime, rate-multiple compression is likely to dominate prospective 2027-2029 load growth.