AltaGas Ltd. (TSX:ALA): A Utility Leader Poised for Growth in Electrification's Golden Age

The global shift toward electrification is reshaping the utility sector, favoring firms that blend stable cash flows with exposure to decarbonization, grid modernization, and data center demand. Among these, AltaGas Ltd. (TSX:ALA) stands out as TD Cowen's top pick, backed by a compelling combination of valuation upside, strategic alignment with secular trends, and a derisked operational profile. With an 8% three-year CAGR and a growing focus on regulated assets, AltaGas offers investors a rare blend of defensive stability and growth potential in an evolving sector.

Valuation Expansion: A Multiple-Expansion Play with Substance

AltaGas's current valuation appears undervalued relative to peers, even after its recent outperformance. TD Cowen's proprietary scorecard—which evaluates scale, growth, asset mix, and regulatory environment—assigns AltaGas a target multiple expansion based on its projected 14% seven-year EPS CAGR. This growth trajectory, driven by rate-based utility assets and contracted midstream projects, suggests the stock could trade at higher multiples as earnings visibility crystallizes.

Current valuations appear to underprice AltaGas's earnings resilience. Despite midstream headwinds in Q1 2025, its utilities segment delivered a 15% EBITDA jump, showcasing the power of regulated assets in a decarbonizing economy. The company's 2025 guidance of $1.775–1.875 billion in normalized EBITDA and $2.10–2.30 EPS further underscores its growth credibility.

Growth Visibility: Derisked Operations and Strategic Alignment

AltaGas's midstream segment, though facing near-term margin pressures, benefits from long-term contracts and projects like the REEF carbon capture initiative and Pipestone II natural gas pipeline. These projects, advancing on schedule, exemplify the company's ability to de-risk cash flows while addressing energy transition needs.

Meanwhile, its utilities division—despite being gas-focused—benefits from rate-base growth and favorable regulatory environments in Canada. Jurisdictional advantages, such as stable returns on regulated assets and low policy risk, provide a structural tailwind. AltaGas's focus on underground grid investments and AI-driven grid management aligns it with trends critical to electrification, such as improving grid resiliency and managing data center loads.

Addressing the Gas-Weighted Profile: A Balancing Act

Critics may note AltaGas's reliance on gas infrastructure, but this is a strategic asset in the transition to renewables. Natural gas remains a critical bridge fuel for grid stability, and AltaGas's midstream operations are increasingly contracted with long-term agreements, reducing commodity price exposure. Additionally, its shift toward regulated assets—now constituting over 70% of EBITDA—buffers the business from cyclical swings.

The Investment Case: A Rare Utility Growth Story

AltaGas's leverage ratio, targeting 4.65x by 2025, signals a disciplined approach to deleveraging while funding growth. This financial prudence, combined with its diversified asset base, positions the company to outperform peers in both rising and falling rate environments.

For long-term investors, the case is clear: AltaGas is undervalued, has high growth visibility, and is strategically positioned at the intersection of electrification and decarbonization. While near-term midstream headwinds may test patience, the company's long-term projects and regulated earnings streams make it a compelling buy for investors seeking utility exposure with upside.

Final Take: Buy for the Next Decade

AltaGas's alignment with secular trends—data center load growth, grid modernization, and decarbonization—coupled with its derisked operations and undervalued multiple, makes it a standout utility play. For those willing to look beyond short-term noise, ALA offers a rare opportunity to capitalize on the electrification boom at a reasonable price.

Recommendation: Buy with a long-term horizon. Monitor progress on REEF/Pipestone II and leverage reduction.

This analysis is based on publicly available data and the author's interpretation. Past performance does not guarantee future results.