Evergy, Inc. (EVRG)

Executive Summary / Key Takeaways

• Regulatory Masterstroke Creates Unusual Utility Growth Story: Missouri Senate Bill 4 and Kansas House Bill 2107 provide cost recovery mechanisms (CWIP in rate base, extended PISA) that enable Evergy to invest $21.6 billion through 2030 while protecting existing customers from rate shock, transforming data center load growth from a cost burden into a structural advantage.

• Data Center Agreements De-Risk Transformation: Four executed electric service agreements totaling 1.9 GW of peak demand—nearly 20% of system peak—include 80% minimum bill provisions and 15-20% premium pricing through Large Load Power Service (LLPS) tariffs, providing unprecedented earnings visibility for the 6-8%+ EPS growth target through 2030.

• Capital Plan Delivers Accelerating Returns: The $21.6 billion capital investment plan (24% increase from prior plan) drives 11.5% annualized rate base growth, which management projects will convert to EPS growth exceeding 8% annually from 2028-2030, a 350 basis point gap that reflects improving cash flows and reduced equity needs.

• Competitive Positioning Strengthens Through Load Growth: While Evergy's current 8.57% ROE and 17.74% operating margin lag peers like Ameren (AEE) (11.34% ROE, 24.61% margin), the 6% annual load growth through 2030—versus historical 0.5-1%—creates a growth trajectory that Midwest competitors cannot match, supported by a 15+ GW development pipeline.

• Key Risk Is Execution, Not Demand: The primary risk is not whether data center demand materializes (1.9 GW contracted, 15+ GW pipeline), but whether Evergy can execute $21.6 billion in capital projects on time and within budget while maintaining its 14% FFO-to-debt target and managing regulatory relationships across two states.

Setting the Scene: The Utility Growth Dilemma and Evergy's Solution

Evergy, Inc., incorporated in 2017 and headquartered in Kansas City, Missouri, operates as a vertically integrated electric utility serving approximately 1.70 million customers across Kansas and Missouri. Like most utilities, it historically grew at a glacial pace—0.5% to 1% annual load growth—trading stability for stagnation. The business model is straightforward: invest in generation, transmission, and distribution assets; earn a regulated return on those assets; and collect steady dividends. This model works until aging infrastructure, environmental mandates, and tepid demand create a capital spending trap where rate base grows but earnings don't.

What makes Evergy different today is a confluence of factors that solves the utility growth dilemma. The company has secured 1.9 gigawatts of data center load through four electric service agreements, with service commencing between 2026 and 2028. This represents nearly 20% of the company's total peak system demand. More importantly, these agreements include Large Load Power Service (LLPS) tariffs approved in November 2025 by both Kansas and Missouri regulators. These tariffs require new large customers to pay a premium demand rate 15-20% higher than existing industrial rates, cover all direct costs to serve them, and post collateral equal to two years of minimum monthly bills. The minimum bill provisions guarantee payment for no less than 80% of contracted capacity regardless of actual usage.

The significance lies in the inversion of traditional utility dynamics. In standard models, large new loads burden existing customers with higher rates to fund infrastructure expansion. The LLPS tariffs ensure new data centers pay their fair share of both existing and new system costs, spreading fixed costs over a broader base and putting downward pressure on future rate requests for residential customers. This creates a virtuous cycle: data center growth funds grid modernization that benefits all customers, while the premium pricing generates additional value for shareholders. This allows the utility to grow earnings at 8%+ annually while maintaining affordability.

History with a Purpose: The 2018 Merger and Renewable Foundation

Evergy's current form emerged from a 2018 merger that combined three operating subsidiaries: Evergy Kansas Central, Evergy Metro, and Evergy Missouri West. This created scale benefits that have held rate increases to 0.5% annually since 2017, compared to a 19% average for regional peers and 29% inflation. The cumulative change in Evergy's all-in rates over that period is approximately 4.9%. This history establishes credibility with regulators and customers that the company can manage costs while investing in infrastructure.

Even before the formal incorporation, Evergy had begun modernizing its generation fleet, adding over 4,500 MW of renewable capacity and retiring more than 2,400 MW of fossil generation between 2005 and 2025. By 2025, CO2 emissions from owned generation were nearly 50% lower than 2005 levels, with a fuel mix of 47% coal, 28% wind, 18% uranium, and 7% natural gas and oil. This early commitment to diversification created a generation portfolio that can meet Southwest Power Pool (SPP) reserve margin requirements—16% starting in 2026, up from 15% in 2025—while positioning the company to serve data centers seeking clean energy.

Evergy has a decade-plus track record of fleet transformation and cost discipline that underpins its ability to execute the $21.6 billion capital plan. When management commits to constructing three new natural gas facilities and three solar farms totaling nearly 2,200 MW, it's building on operational expertise. This history de-risks the execution story and explains why regulators approved these projects in July 2025.

The Data Center Transformation: From Pipeline to Earnings Power

Evergy's economic development pipeline has ballooned to over 15 gigawatts, with a "Tier 1" opportunity of 4-6 gigawatts representing the most active projects. The February 2026 announcement of four executed electric service agreements—two new data centers and two expansions—totaling 1.9 GW of steady-state peak demand is the proof of concept. These projects alone represent nearly a 20% increase in total peak system demand, with service expected between 2026 and 2028.

What makes these agreements transformative is their structure. The LLPS tariffs include minimum term lengths, minimum monthly bills covering no less than 80% of contracted capacity, creditworthiness standards, collateral requirements, and termination fees covering remaining minimum bills. This means Evergy has visibility into load ramps and revenue streams that utilities rarely achieve. Management has embedded 1,300 MW of this 1.9 GW into its 2030 retail load growth forecast, with the remainder ramping after 2030. The 80% minimum bill provision provides downside protection if data center utilization falls short, while the 15-20% premium pricing generates upside.

For investors, the implications are significant. Traditional utility earnings are driven by rate base growth and regulatory outcomes, both slow-moving and unpredictable. Evergy's data center agreements create a visible runway of predictable earnings and cash flow growth into the next decade. The 6% annual retail load growth through 2030—versus the historical 0.5-1%—is secured by contracts. This de-risks the 6-8%+ EPS growth target and explains why management expects EPS growth to exceed 8% annually starting in 2028.

Regulatory Tailwinds: The CWIP and PISA Advantage

The passage of Missouri Senate Bill 4 in April 2025 marked a pivotal legislative victory. The bill introduces mechanisms for cost recovery for new natural gas generation, including construction work in progress (CWIP) in the rate base and extending plant-in-service accounting (PISA) provisions to 2035. Kansas House Bill 2107, also enacted in April 2025, addressed wildfire liability by establishing a two-year statute of limitations and $5 million punitive damages cap.

These mechanisms are vital because CWIP in rate base allows Evergy to earn a return on capital investments during construction, reducing regulatory lag. PISA provisions help manage elevated depreciation and interest expense by smoothing rate impacts. For a company investing $21.6 billion over five years, reducing regulatory lag can significantly improve internal rates of return. The extension of PISA to 2035 provides regulatory certainty that underpins the entire capital plan.

The Kansas Corporation Commission (KCC) and Missouri Public Service Commission (MPSC) approvals in July 2025 for three new natural gas facilities and three solar farms totaling nearly 2,200 MW demonstrate regulatory alignment. Regulators understand that data center growth requires dispatchable generation to meet SPP reserve margins. The alternative is relying on market purchases, which creates rate volatility. By approving new gas plants, regulators are enabling rate stability while supporting economic development.

Evergy has de-risked its regulatory environment at the exact moment it needs to invest heavily. The 11.5% rate base growth through 2030 is achievable because the regulatory framework supports it, converting what could be a risk into a competitive advantage versus peers operating in less constructive jurisdictions.

Financial Performance: Resilience Through Headwinds

Evergy's 2025 financial results demonstrate operational resilience despite challenges. Adjusted EPS of $3.83 per share in 2025 was essentially flat versus $3.81 in 2024, but the composition reveals important dynamics. Weather-normalized demand grew 0.3%, contributing $0.04 per share, while recovery and return on regulated investments added $0.56. These gains were offset by higher operating and maintenance costs, depreciation, and interest expense ($0.43 decrease) and dilution from convertible notes ($0.05).

Underlying business fundamentals strengthened despite weather and industrial headwinds. January and February 2025 saw massive snowstorms that closed large businesses, while a major oil refinery outage further pressured industrial load. Yet the company still grew adjusted earnings through rate recovery and transmission revenue increases of $38 million. This shows the regulatory construct is working: investments are being recovered, and new rates are flowing through to earnings.

The 2026 guidance midpoint of $4.24 per share represents an 11% increase from 2025's $3.83, with management expressing high confidence based on executed ESAs and strong early results. The long-term adjusted EPS growth target of 6-8%+ through 2030, with growth exceeding 8% annually from 2028, is bolstered by these agreements. The acceleration in 2026-2027 sets the stage for the 8%+ breakout starting in 2028 as data center load ramps and capital investments begin generating returns.

Capital Plan and Rate Base Growth: The Engine of EPS Acceleration

Evergy's updated five-year capital plan totals $21.6 billion from 2026-2030, a $4.1 billion (24%) increase over the prior plan. Approximately $3.4 billion of the increase is allocated to new generation investment—primarily natural gas, renewables, and battery storage—to support growing customer demand and meet higher SPP reserve margin requirements. The plan is expected to deliver 11.5% annualized rate base growth through 2030, up from the prior forecast of 8.5%.

Rate base growth is the primary driver of utility earnings, but the conversion to EPS growth is not one-to-one due to regulatory lag, equity issuance, and financing costs. Management models a 350 basis point gap between 11.5% rate base growth and 8%+ EPS growth. This gap reflects the reality that issuing equity and waiting for rate recovery creates friction. However, the gap is narrowing over time—management expects no equity issuances in 2030 as cash flows from operations improve.

The financing plan supports this trajectory. Evergy expects to issue $3.3 billion of equity between 2026-2030, with annual needs of $700-900 million from 2026-2029. The plan incorporates $1 billion of equity credit from hybrid securities and targets an FFO-to-debt ratio of approximately 14%. In early 2026, the company repurchased $244.1 million of convertible notes, funded by term loans, demonstrating proactive balance sheet management.

Evergy is front-loading equity needs during the heavy investment phase, but the improving cash flow profile from data center load growth will reduce dilution over time. This is crucial for investors because it means EPS growth will accelerate as the equity overhang diminishes. The 8%+ growth from 2028-2030 assumes this dynamic plays out, creating a potential inflection point where earnings growth exceeds rate base growth.

Competitive Context: Growth vs. Scale

Evergy operates in a competitive landscape of Midwest utilities, with direct overlap with Ameren Corporation in Missouri and indirect competition with Xcel Energy (XEL), WEC Energy Group (WEC), and American Electric Power (AEP) through SPP and MISO interconnections.

Ameren serves 2.4 million electric customers across Missouri, Illinois, and Iowa, with 2025 adjusted EPS of $5.03 and operating margins of 24.61% versus Evergy's 17.74%. Ameren's ROE of 11.34% exceeds Evergy's 8.57%, reflecting scale advantages. However, Ameren's load growth is driven by traditional expansion, not data centers, giving Evergy a potential growth edge.

Xcel Energy's broader geographic diversification provides resilience but dilutes focus. With 2025 ongoing EPS of $3.80 and operating margins of 16.68%, Xcel matches Evergy's earnings power but lacks the concentrated data center pipeline. WEC Energy's integrated gas-electric model and 21.31% operating margins demonstrate superior efficiency, but its manufacturing-heavy customer base faces cyclical headwinds that Evergy's data center load avoids.

American Electric Power's massive transmission network and $5.97 EPS showcase scale advantages, but its coal retirement costs and regulatory delays create complexity that Evergy's streamlined Kansas-Missouri footprint avoids.

Evergy is prioritizing growth over current profitability. Its 73.70% payout ratio exceeds the 50-60% target, and its 8.57% ROE lags major peers. However, the 6% annual load growth through 2030 is unmatched in the industry. If Evergy executes its capital plan and converts rate base growth to EPS growth as projected, the valuation gap versus peers will close.

Technology and Operations: Renewables and Reliability

Evergy's generation strategy is "all-of-the-above," but with a clear renewable tilt. Since 2005, the company has added over 4,500 MW of renewable capacity while retiring 2,400 MW of fossil generation. Three solar farms totaling nearly 2,200 MW have been approved, though the 159 MW Kansas Sky facility faces litigation-related delays.

Data center customers increasingly demand clean energy, and Evergy's wind portfolio positions it to meet this need while qualifying for federal incentives. The company believes its three approved solar projects will qualify under the OBBBA (or similar federal programs), providing additional financial support. This reduces the cost burden on ratepayers while advancing the company's net-zero CO2e emissions goal by 2050.

Operationally, Evergy achieved its strongest reliability performance in company history in 2025, with top-tier SAIDI results. Wolf Creek's 27th refueling outage completed successfully in late 2025. The generation team maintained strong availability through extreme weather, including a blizzard and record-breaking cold that drove a new winter peak load record in SPP.

Evergy can maintain reliability while adding volatile renewable generation and serving data centers with high uptime requirements. This operational excellence is a prerequisite for winning data center business and a competitive differentiator versus peers with weaker reliability records.

Risks and Asymmetries: What Could Break the Thesis

The primary risk is execution of the $21.6 billion capital plan. Challenges include labor costs, contractor performance, and supply chain disruptions. If projects are delayed, the 11.5% rate base growth target becomes unattainable. The company must construct two 705 MW combined-cycle natural gas plants in Kansas and a 440 MW simple-cycle plant in Missouri by 2030. Any slip in these timelines could delay data center service commencement and trigger contract penalties.

Regulatory risk remains material. While SB 4 and HB 2107 provide constructive frameworks, rate cases are still required. Evergy Metro filed a $140 million retail revenue increase request in February 2026, targeting a 10.50% ROE. If regulators approve lower returns, the earnings growth thesis weakens. The PISA limitations—1.50% annual increase in Kansas, 2.50% in Missouri—could constrain cost recovery if capital expenditures exceed these thresholds.

Load growth risk is asymmetric. The 15+ GW pipeline includes speculative projects. While 1.9 GW is contracted, the remaining 13+ GW represents opportunity, not certainty. If data center development slows, Evergy's growth premium would evaporate. Conversely, if the pipeline converts faster than expected, the company may need to accelerate capital spending, potentially straining the balance sheet.

Credit risk is partially mitigated but not eliminated. New large customers must post collateral, but a major data center bankruptcy could still impact cash flow. The 14% FFO-to-debt ratio is aggressive; any deterioration could trigger a rating downgrade, increasing financing costs and reducing earnings.

Valuation Context: Pricing the Transformation

At $80.85 per share, Evergy trades at 22.09 times trailing earnings and 3.12 times sales, with a 3.44% dividend yield. The 73.70% payout ratio is elevated versus the 50-60% target, reflecting the transition phase. The EV/EBITDA multiple of 12.40 is in line with peers like Ameren at 13.43 and Xcel at 14.13.

The key valuation driver is the growth trajectory. The 6-8%+ EPS growth target through 2030, with acceleration to 8%+ from 2028, compares favorably to peers growing at 4-6%. However, Evergy's 8.57% ROE lags peers, justifying a modest discount until execution proves the higher growth converts to higher returns.

The debt-to-equity ratio of 1.50 is manageable but higher than optimal. The financing plan's $8.4 billion of incremental debt and hybrid securities will increase leverage. However, the $1 billion of equity credit from hybrids and improving cash flows from data center operations support the 14% FFO-to-debt target. The company has $1.1 billion available under its master credit facility expiring in 2028, providing liquidity.

Evergy trades at a discount to its growth rate. A 22 P/E on 8% EPS growth implies a PEG ratio of 2.75, reasonable for a utility with visible, contracted growth. If the company executes and ROE improves to 10-11% by 2030, multiple expansion to 25x earnings would drive significant stock appreciation. The 3.44% dividend yield provides income while investors wait for the transformation to play out.

Conclusion: A Utility Growth Story Worth Paying For

Evergy has engineered a rare combination in the utility sector: massive load growth that benefits existing customers rather than burdening them. The LLPS tariff structure, combined with supportive legislation in Missouri and Kansas, creates a framework where 1.9 GW of data center demand can drive 11.5% rate base growth and 8%+ EPS growth while holding residential rate increases to inflation. This is the central thesis that differentiates Evergy from peers.

The execution risk is real. The $21.6 billion capital plan must be delivered on time and budget, regulatory relationships must remain constructive, and the 15+ GW pipeline must convert to signed agreements. However, the 80% minimum bill provisions, premium pricing, and collateral requirements in existing contracts provide downside protection that utilities rarely achieve.

For investors, the key variables to monitor are capital project execution, regulatory outcomes in upcoming rate cases, and pipeline conversion. If these track positively, Evergy's valuation gap versus higher-ROE peers will close as the market rewards the superior growth trajectory. The stock at $80.85 offers a compelling risk/reward: downside protected by contracted cash flows and a 3.44% yield, upside driven by a transformation that could deliver 8%+ EPS growth through 2030. This is a utility growth story that actually justifies its premium.