Capital plan has upside optionality, but not yet enough to support WEC's valuation premium

Overview

This report updates earnings forecasts and valuation after WEC reported second-quarter 2026 results. The analysis focuses on the third-quarter capital plan update, Oracle's credit support for the Vantage data center project, Port Washington project execution, and regulatory processes in Wisconsin and Illinois. Although large-load demand and project execution fundamentals are generally solid, the report believes these growth drivers have not been sufficiently de-risked and have not created enough differentiation versus peers to support a valuation premium, so it maintains a Sell rating.

Core views

First, the third-quarter capital plan has upside potential, driven by the Microsoft I-94 corridor expansion, new 400 to 500MW large-load customers, ATC transmission investment, and Point Beach-related capital expenditures, but the additions are relatively back-end weighted and may mainly fall in 2030 to 2031. Second, Oracle's rating downgrade has not triggered a change in the credit support framework; management said collateral requirements had already been included in the original filing based on BBB trigger conditions and that it has the collateral needed to address further downgrades, but the market still needs to verify Port Washington project execution. Third, Wisconsin and Illinois rate cases, the gubernatorial primary, and data center affordability disputes represent continuing pressure. Fourth, the stock's underperformance versus XLU over the past six months has improved the risk/reward somewhat, but after valuing it at 18x forward P/E, the target price is only $110, still insufficient to support a more constructive rating.

Analysis framework

The report first updates subsidiary-level earnings models, operations and maintenance expenses, interest expenses, and WEPCo rate growth assumptions based on actual second-quarter 2026 results, then rolls the valuation period forward to the future fifth through eighth quarters and calculates the 12-month target price using 18x P/E. It also assesses risk/reward by combining capital plan scenarios, data center customer credit support, regulatory case progress, relative peer valuation, and relative stock performance.

Methodology notes

• Earnings ForecastSubsidiary Fundamentals Model

  Update revenue, expenses, interest, and EPS forecasts based on quarterly results and rate assumptions.

  The model incorporates second-quarter 2026 results and adjusts assumptions for WEPCo rate growth through 2028, operations and maintenance expenses, and interest expenses at each subsidiary.

• Valuation methodsForward P/E Valuation

  Apply 18x P/E based on EPS for the future fifth through eighth quarters.

  The 18x valuation multiple is unchanged, and rolling the valuation window forward drives the target price increase from $108 to $110.

• Scenario AnalysisCapital Plan Incremental Driver Analysis

  Assess the potential contribution of data centers, large loads, transmission, and nuclear-related investment to the capital plan.

  The report identifies upside sources such as the Microsoft I-94 corridor, 400 to 500MW customers, ATC transmission growth, and Point Beach capital expenditures, but believes the projects have not been sufficiently de-risked and that investment is more skewed toward 2030 to 2031.

• Multi-Factor ComparisonGS Factor Profile

  Compare the company with the market and industry peers across growth, financial returns, valuation multiples, and composite indicators.

  Growth metrics use forward revenue, EBITDA, and EPS growth; financial returns use ROE, ROCE, and CROCI; valuation multiples use standardized rankings of P/E, P/B, price-to-dividend, EV/EBITDA, and other metrics.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• WEC.US

  Core research subject

  Strengths

  The regulated utility business has a relatively stable earnings base, while large-load demand, transmission investment, and potential nuclear-related capital expenditures can support long-term rate base growth.

  Weaknesses

  Differentiation in capital plan and load growth versus peers is insufficient, the current valuation is relatively high, and leverage is expected to rise over the next several years.

  Comparison

  Over the past six months, WEC has fallen about 4%, while the utilities ETF XLU has risen about 2%; relative weakness has improved risk/reward, but not enough to change the Sell view.

  Risks

  Regulatory outcomes in Wisconsin and Illinois, data center affordability disputes, Port Washington execution, customer credit support, and insufficient realization of capital plan additions.

• ORCL.US

  Credit support-related party for the Vantage data center project

  Strengths

  The existing credit support framework has been designed based on BBB trigger conditions, and WEC management said it currently holds the collateral needed to address further rating downgrades.

  Weaknesses

  Oracle's credit rating downgrade has increased market attention on contract performance and the adequacy of credit protection.

  Comparison

  Its credit condition is not a direct core driver of WEC's earnings forecast, but it will affect market pricing of risks related to Port Washington and the Vantage project.

  Risks

  If credit quality continues to deteriorate, collateral arrangements are not executed as expected, or project demand changes, uncertainty around the data center project may increase.

• XLU

  Utilities sector relative performance benchmark

  Strengths

  Represents diversified exposure to the U.S. utilities sector.

  Weaknesses

  Cannot reflect WEC-specific data center projects, state-level regulation, and capital plan risks.

  Comparison

  Over the past six months, XLU has risen about 2%, while WEC has fallen about 4%.

  Risks

  Changes in interest rates, sector valuations, and flows into defensive assets may affect relative performance comparisons.

Key data

• 12-month target price$110Previously $108, mainly due to rolling the valuation window forward.
• Current share price$109.25Implies price upside of about 0.7% to the target price.
• Expected total return4%Includes expected dividend return.
• 2026 EPS forecast$5.61Previously $5.60, at the high end of company guidance of $5.51 to $5.61 and above FactSet consensus of $5.60.
• 2027 to 2029 EPS forecasts$5.99, $6.43, $6.99Forecasts remain unchanged this time.
• EPS CAGR through 20307.6%Unchanged versus the previous forecast.
• Target valuation multiple18x P/EApplied to EPS forecasts for the future fifth through eighth quarters.
• Potential new large-load scale400 to 500MWMay be included in the third-quarter capital plan update.
• Point Beach capital expenditure referenceAbout $2 to $2.5bn per GWManagement mentioned that 500MW expires in December 2030 and March 2033, respectively.
• Relative performance over the past six monthsWEC at -4%, XLU at +2%Relative underperformance has improved risk/reward versus previously.
• Expected 2026 net debt to EBITDA ratio5.7xExpected to rise further to 5.9x and 6.0x in 2027 and 2028.

Impact & implications

Near-term share price catalysts mainly depend on whether the third-quarter capital plan expands meaningfully and whether regulatory cases can achieve constructive outcomes. If large-load, transmission, and Point Beach investments are clearly implemented, WEC's long-term rate base and earnings growth could be supported; however, because the related additions are concentrated in more distant years, and data center customer credit, rate affordability, and project execution have not been fully de-risked, the current valuation premium lacks sufficient support. The target price is close to the current price, meaning investment returns depend mainly on dividends rather than capital appreciation.

Risks

• Staff and intervenor testimony in the Wisconsin rate case comes in below expectations, or the final year-end ruling is unfavorable.
• The probability of a regulatory settlement in Illinois is relatively low, and the outcome of the Peoples Gas rate case is uncertain.
• The election-year political environment and disputes over data center power affordability may lead to stricter regulation, or even proposals to pause data center construction.
• Delays, cost overruns, or changes in customer demand in the Port Washington and Vantage project execution.
• Oracle's credit rating is further downgraded, or credit support and collateral arrangements fail to adequately cover project risks.
• Third-quarter capital plan additions fall short of market expectations, or new investments are mainly concentrated in 2030 to 2031, resulting in limited near-term earnings contribution.
• High capital expenditures drive continued increases in the net debt to EBITDA ratio and net debt to equity ratio.
• The current valuation premium faces compression risk if growth does not become clearly differentiated.

What to watch

• The scale, timing distribution, and funding sources of the third-quarter capital plan update.
• Subsequent expansion of the Microsoft I-94 corridor and contracting progress with new large-load customers.
• Whether ATC transmission investment and Point Beach-related capital expenditures are included in the formal plan.
• Port Washington project construction progress, costs, and in-service timetable.
• Oracle rating changes, collateral additions, and credit protection before the VLC electric service agreement takes effect on June 1, 2027.
• Wisconsin rate case testimony in mid-August, the final year-end ruling, and implementation of new rates in 2027 to 2028.
• The Peoples Gas rate case and progress on an Illinois regulatory settlement.
• Wisconsin political environment, proposals to pause data center construction, and community affordability discussions.
• Whether 2026 EPS can reach the high end of company guidance at $5.61, as well as subsequent changes in expenses and interest costs.