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AI is the kind of once-in-a-century advancement that will forever change how the world works. It has also created tremendous wealth-building opportunities in sectors providing AI logistic support. One example is the utility stock boom, created partly by AI’s insatiable appetite for power. CNBC’s Jim Cramer recently shared his affection for one utility stock in particular. Keep reading to find out which one and why.
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One of Jim Cramer’s most famous segments is his lightning round, where he answers questions from investors who call into his show. When a caller asked about Essential Utilities (NYSE: WTRG), Cramer emphatically said, “It’s a great company … That is a terrific stock.” So, what about Essential Utilities makes Jim Cramer so excited?
According to its website, Essential Utilities is one of America’s largest publicly traded natural gas and water companies. It mainly comprises two companies, Aqua (water) and Peoples (natural gas), which provide services for more than five million customers across nine states. Water is a basic human necessity, giving Essential Utilities a permanently locked-in (and lucrative) customer base.
However, it’s not the strength of Essential Utilities’ water business that’s exciting investors. Big Tech and data center developers are increasingly looking at natural gas as a potential energy source for AI. Natural gas offers several distinct advantages over traditional energy sources, most notably its ability to meet AI’s power needs while having a smaller carbon footprint than coal and other fossil fuels.
This is becoming an increasingly important consideration as AI businesses and data centers continue moving closer to large cities and as the effects of climate change become more pronounced. Peoples is Essential Utilities’ natural gas arm, which means they already have infrastructure in place to power AI operations and hyperscale data centers. It has over 2.5 million miles of natural gas pipelines in the markets it serves across several states.
Essential Utilities released Q3 2024 earnings that justified Jim Cramer’s belief in this stock. The company’s $435 million in revenue exceeded analysts‘ consensus expectations by roughly 2.5%. Essential’s earnings per share (EPS) of $0.25 also outpaced most analysts’ predictions. A group of seven analysts compiled by Simply Wall Street is predicting Essential Utilities will earn $2.37 billion in 2025.
If Essential hits that target, it will represent a 21% increase in revenue over 2024. It’s also worth noting that Essential has been growing by 15% annually for the past five years. That number is impressive but looks even stronger compared to the 6.7% average growth rate of similar companies over the same period. Essential shares are currently trading at $39.67 and paying a solid 3.3% dividend.
While it’s always important to understand that a stock exceeding analyst expectations can also fall short of them, it appears that Essential is well-positioned for a strong 2025. It has a solid customer base for its water business and AI could inject even more profitability into its natural gas business. That’s why Jim Cramer (and others) think Essential Utilities is an energy stock worth considering.
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