12 BARRON’S February 22, 2021
T
he storm that clobbered
the South and left millions
without power or reliable
drinking water for much
of the past week offered a
reminder: Software may
be reinventing American
life, but it can’t replace the hardware
that the country depends on for basic
services.
The government response will un-
doubtedly involve billions of dollars in
new investments to the electric grid
and other basic infrastructure, benefit-
ing equipment makers. Oil-and-gas
companies that avoided the disruption,
meanwhile, should thrive as energy
prices spike. Supply and demand will
take time to come back into balance,
benefiting the companies that were
spared the worst of the storm’s damage.
Among those that could do well are
Eaton(ticker: ETN),General Elec-
tric(GE), \Generac Holdings
(GNRC), oil-and-gas producersHess
(HES) andNorthern Oil & Gas(NOG),
and refinerPBF Energy(PBF).
President Joe Biden ran on a pledge
to “build back better,” and the storm
is likely to give his plan new direction,
said Jon Lieber, managing director of
Eurasia Group and a former economic
policy adviser to Senate Minority
Leader Mitch McConnell.
The Texas crisis “probably changes
the mix of policies, and increases the
priority placed on electrical grid reli-
ability, resilience of water systems,
climate resilience, and things like that,”
Lieber said. While Biden has empha-
sized climate-friendly goals, an infra-
structure bill will be much more wide-
ranging than that, boosting several
sectors. “This bill’s going to be so big,
there’s going to be money for every-
body,” he said.
Big storms happen every year, and
there’s evidence that they’ve been hit-
ting with increasing frequency as cli-
mate change intensifies. But the one
that pummeled Texas and other states
was particularly destructive to infra-
structure. Analyst Paul Sankey of San-
key Research compared it to Hurricane
Katrina in terms of its surprising force
and the enormous ripple effects.
More than two million barrels a
day of oil production were shut down
by midweek. Sankey estimated that
it might be more than three million
barrels, or nearly a third of U.S. out-
put; four million barrels of refining
capacity; and more than 15% of
natural-gas production. West Texas
Intermediate oil futures closed on
Tuesday above $60 for the first time
since January 2020, and the natural-
gas market went haywire.
Texas rarely gets severe winter
storms, so its infrastructure wasn’t
prepared for the strength of this one.
That included oil, gas, and coal, and
renewables like wind.
Natural gas, the largest power
source for Texas electricity, took the
biggest hit as wells and pipes froze.
The International Energy Agency
found that gas-fired generation capac-
ity fell to 31 gigawatts from its normal
winter capacity of 55 gigawatts. “Texas
has a power shortage because it has a
gas shortage,” the agency said.
Texas Gov. Greg Abbott has called
on the state legislature to “mandate
the winterization of Texas’ power sys-
tem” and says those measures could
be passed through a faster emergency
process. That kind of fast funding,
and the promise of federal aid, should
benefit several industrial companies.
Among them is Eaton, which makes
more than 40% of its revenue from
electrical equipment like transformers,
circuit breakers, and power systems.
Eaton is already at the center of a para-
digm shift in the U.S. grid.
“If you think about the future of the
electrical grid, everything that we inter-
act with will have the ability to both
consume and to sell electricity back to
the grid,” CEO Craig Arnold said in
December. The stock trades at 22.
times expected 2021 earnings, equal to
the S&P 500 index.
General Electric is similarly at the
center of the country’s infrastructure,
supplying major components of wind
and gas power systems. CEO Larry
Culp said at a conference on Wednesday
that he expected GE to “be part of that
solution” following the Texas outages.
Generac makes the vast majority
of residential backup generators in the
U.S., and its sales typically grow after
natural disasters. Earlier this month,
Generac CEO Aaron Jagdfeld said
that “the ongoing elevated level of
power outages, combined with the
emerging ‘home as a sanctuary’ trend,
continue to drive unprecedented levels
of demand for home standby genera-
tors across the entire U.S.”
And even as oil-and-gas companies
struggle to bring back production, San-
key sees potential benefits for those
whose operations weren’t in the storm’s
path. That includes Northern Oil &
Gas, which is up 28% this year after
falling 63% last year. It trades at just
five times expected 2021 earnings. An-
other potential winner could be Hess,
which has operations in North Dakota,
the Gulf of Mexico, and several over-
seas spots. PBF Energy, a refiner based
in New Jersey, could benefit from its
location, Sankey notes.B
Al Root contributed reporting.
AsTexasVowstoRebuild,
6StocksSettoElectrify
Companies that provide energy infrastructure and oil-and-gas producers that were
spared storm damage are among those that could benefit from federal and state funding
ByAVI SALZMAN
An oil well in the Brazos River Valley
of central Texas on ThursdayJustin CalhounRestoring Power
Some companies could benefit from efforts to prevent another Texas-like crisis.
Recent YTD Market 2020 2021E
Company / Ticker Price Change Value (bil) Revenue (bil) P/E
General Electric/ GE $11.63 7.7% $104.0 $79.6 44.
Eaton/ ETN 125.19 6.4 50.0 17.9 22.
Generac Holdings/ GNRC 351.46 57.6 22.0 2.5 41.
Hess/ HES 60.72 17.8 19.0 4.7 N/A*
PBF Energy/ PBF 11.80 82.2 1.4 15.1 N/A*
Northern Oil & Gas/ NOG 11.03 27.4 0.7 0.5 5.
*Expected to lose moneyin 2021. E=estimate. Source: FactSet