Goldman Sachs recently rated several stocks that power data centers as buys. Some of these stocks also offer income and upside potential. Earlier this month, the firm announced the latest version of its Ten Buy list of energy and power stocks that offer a compelling risk/return at current levels. Goldman highlighted five investment themes behind the stock list. Bullish sentiment towards refining. It means a return in Big Oil. Attractive risk/reward in the international oil services and data center/power growth story. Kodiak Gas Services and The Williams Kos are in the Data Center Power sector, and both offer dividends that are higher than the S&P 500’s current yield of 1.04%. Kodiak Gas Services The Texas-based energy infrastructure company provides natural gas compression services, which Goldman considers “one of the more interesting opportunities within our midstream midstream cap coverage.” The company expects earnings before interest, taxes, depreciation and amortization to increase by approximately 15% by 2030, driven by its core compression business and expansion into Kodiak’s “behind-the-meter” power generation business. Behind-the-meter refers to the generation or storage of energy at the customer’s end of the electricity meter, a way for data centers to provide the power they need without burdening the local grid. Earlier this month, Kodiak and Baker Hughes announced a multi-year agreement in which Baker will provide gas turbines and generators to support Kodiak’s behind-the-meter power development. According to LSEG, Goldman Sachs is in a good position when it comes to a buy rating on Kodiak. All 15 analysts covering the stock consider Kodiak a buy or strong buy, according to LSEG. The consensus price target suggests a 27% upside for the stock, while Goldman’s $89 price target suggests the company expects the stock to jump more than 36% from Friday’s closing price. The stock price is up nearly 75% this year alone, and the dividend yield is 3%. Williams Koss The Oklahoma-based natural gas infrastructure company is “one of the most attractive buys in our midstream large-cap coverage given the theme of continued natural gas demand,” Goldman said. While the company’s previous pipeline announcements have been modest, Goldman believes Williams’ diversification into behind-the-meter trading is particularly attractive. “We believe the market continues to underestimate future acquisition volumes, options to fund incremental projects, and the potential for accelerated pipeline announcements at scale. The overall risk to our EBITDA (compound annual growth rate) is likely to be to the upside,” Goldman wrote. During its May earnings call, Williams management announced three new projects. Atlas, gas infrastructure contract to serve “large investment grade customer data centers” in the Northeast; The Silver Spur is an expansion of Williams’ Northwest Pipeline System. Goldman’s $82 price target suggests an upside of nearly 12% from Friday’s closing price. The stock price has increased about 24% since the beginning of the year, and the current dividend yield is 2.8%. According to LSEG, 20 out of 25 analysts covering the stock rate it a buy or strong buy, giving the consensus price target an upside potential of more than 11%. Other dividend-paying companies on Goldman’s Ten Buy list of energy stocks include Explo Group Holdings, which currently yields about 1.9%. Marathon Petroleum currently yields about 1.3%. and ConocoPhillips, with a yield of 2.8%.
