Morningstar Identifies Top Undervalued Utilities Stocks Amid Sector Growth and Regulatory Shifts

Morningstar has released its list of the top 10 undervalued utilities stocks as of June 2026, highlighting significant investment opportunities in the regulated electric and gas sectors. While the Morningstar US Utilities Index trailed the broader market with a 3.82% year-to-date gain, analysts point to robust growth potential driven by decarbonization and infrastructure modernization. Key players like PG&E and National Grid are positioned for substantial capital expenditure programs aimed at meeting ambitious environmental targets and improving grid reliability.

PG&E emerges as a primary focus for investors, trading at a 19% discount to its fair value estimate of $20.50 per share. Following its 2020 bankruptcy exit, the California-based utility is projected to invest an average of $14 billion annually through 2030 to support the state’s goal of eliminating carbon emissions by 2045. This massive infrastructure spend is expected to drive at least 9% annual earnings growth, supported by a constructive regulatory environment that includes usage-decoupled rates and four-year rate reviews. However, the company remains under intense scrutiny due to past safety failures and the state’s strict liability standards for wildfires, which could lead to a state takeover if operational missteps occur.

National Grid, which operates transmission systems in the UK and the Northeastern US, is currently valued at a 16% discount relative to its $96.50 fair value estimate. The firm recently transitioned into the RIIO-T3 price control period in April 2026, which raised the real return on equity to 5.7% and is expected to yield a nominal return on equity of 9%. To fund a 50% increase in investments—primarily for new transmission lines connecting wind farms in England—the company executed a GBP 7 billion rights issue and noncore asset disposals. Despite a 20% dividend rebasing in fiscal 2025, National Grid targets a 10% compound annual growth rate in regulated asset value through 2031.

Other notable mentions in the report include Edison International, which serves 5 million customers in Southern California and offers a forward dividend yield of 4.95%. The broader utilities sector is navigating a complex landscape of electrification and decarbonization, which Morningstar analysts suggest will lead to a shrinking natural gas business for companies like PG&E in favor of clean energy investments. The list of top picks also includes American Electric Power, FirstEnergy, and Eversource Energy, all of which are being monitored for their ability to balance safety, regulatory compliance, and shareholder returns in an evolving energy market.