Why Black Hills Stock Rocketed Higher Today
Key Points
Black Hills signed an agreement to provide energy for Google's soon-to-be-built data center in Cheyenne, Wyoming.
The deal will generate net income of $150 million in 2030 and $2.4 billion in unlevered free cash flow by 2048.
This marks a big win for shareholders.
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Shares of Black Hills Corporation (NYSE:BKH) were trading sharply higher on Wednesday, soaring as much as 10.2% in early trading. By the time the market closed, the stock was still up 7.2%.
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The catalyst that sent the gas and electric utility stock higher was a long-term data center deal with Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG).
Image source: Getty Images.
Electrifying
In a press release that dropped after the market close on Tuesday, Black Hills announced that it had signed a definitive agreement with Google to serve a planned data center in Cheyenne, Wyoming. The facility is expected to be up and running in late 2027 and ramp to peak capacity in 2030.
"Black Hills will provide up to 590 megawatts of grid-connected energy service through company-owned generation and market energy," according to the announcement. Additionally, the company will manage the output of 2.1 gigawatts of third-party-contracted energy service via a privately managed microgrid as part of a Large Power Contract Service (LPCS) agreement.
To help meet the demand, Black Hills will invest $1.8 billion in gas generation infrastructure. The project is expected to generate net income of roughly $150 million in 2030 and $2.4 billion in unlevered free cash flow between now and 2048, net of the initial $1.8 billion outlay. Black Hills also noted that the agreement included strong customer protections to ensure no costs were shifted to consumers.
Wall Street was quick to respond. Analyst Matvey Tayts with Freedom Brokers upgraded Black Hills stock to buy from hold, while simultaneously boosting his price target to $78 from $69. That represents potential gains of 10% for investors compared to the stock's closing price on Tuesday -- though it has significantly narrowed that gap with today's move.
The biggest takeaway is that the agreement significantly reduces the risk associated with Black Hills' largest growth opportunity -- the risk of being left holding the bag. In this case, Google is assuming the majority of the risk.
That marks a big win for shareholders.
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Danny Vena, CPA has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.
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