PPL Reports Solid 2025 Earnings but Growth Faces High Leverage and Regulatory Hurdles

What happened

PPL announced 2025 GAAP earnings of $1.59 per share, but emphasized ongoing earnings of $1.81 per share, showing 7.1% growth over 2024. The company extended its EPS growth targets through 2029, aligning with its 6-8% annual target, yet this relies on a $15 billion 2025-27 capex plan funded heavily by debt. High leverage persists at ~5.1x net debt/EBITDA with interest coverage of only ~2.5x, squeezing financial flexibility amid rising rates. Critical regulatory decisions in Pennsylvania and Kentucky are pending, which could delay or disallow cost recovery for data-center and generation projects. While the earnings beat is positive, the stock's ~25.5x P/E valuation already embeds this growth, leaving minimal cushion for execution missteps or adverse regulatory outcomes.

Implication

The 7.1% ongoing earnings growth confirms operational execution but does not address the structural risks from PPL's high debt levels and dependence on regulatory approvals. Extended EPS targets through 2029 are ambitious but hinge on favorable outcomes from Pennsylvania's base-rate case and Kentucky's CPCN decisions, which are uncertain and politically charged. Persistent leverage at ~5.1x net debt/EBITDA limits financial resilience, increasing vulnerability to interest rate hikes or cost overruns in the capex plan. Investors must scrutinize upcoming regulatory rulings closely, as negative decisions could compress returns and derail the growth narrative, potentially pressuring the stock. Given the balanced risk-reward at current valuations, patience is warranted to seek better entry points after regulatory de-risking or evidence of improved credit metrics.

Thesis delta

The earnings report and extended targets validate PPL's near-term growth trajectory but do not shift the core investment thesis, which remains constrained by high leverage and regulatory uncertainty. The 'WAIT' stance is reinforced, as positive earnings are insufficient to mitigate the elevated risks from the $15 billion capex plan and pending state decisions. Investors should await clearer regulatory signals or financial de-risking before considering a more aggressive position.