Black Hills Corporation (BKH) | The Buildout — AI Infrastructure
The Verdict
Black Hills Corporation is a regulated electric and natural gas utility serving customers across eight states in the central and western United States. Its link to the AI buildout runs through Wyoming Electric, where it supplies power, capacity, and transmission to large data-center customers in and around Cheyenne. The company does not make compute or cooling; it sells the electricity and the grid connection that let a data center operate. Management is positioning incrementally more of the company's growth around that single Wyoming franchise and the large-load customers locating there.
| Market Cap | — |
| Revenue (TTM) | $2.3B |
| Revenue Growth | +2.5% |
| EBITDA Margin (TTM) | 36.5% |
| Net Debt | $4.4B |
| Earnings Beats | 2 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Customer-funded advances on the 1.8 GW Cheyenne project rose to up to $377 million, from $201 million a quarter earlier — customer cash pre-funding long-lead generation equipment.
- The data-center pipeline tops 3 GW, roughly five times the 600 MW in the current plan; management counts only demand under nondisclosure agreements and active negotiation.
- Wyoming's July peak load hit 439 MW, up 16% year over year, extending 20 consecutive years of rising peak system loads and a 183% increase since the 2005 acquisition.
- Management reaffirmed FY2026 adjusted EPS guidance of $4.25 to $4.45 — 6% growth at the midpoint over 2025 — for a second consecutive quarter.
- The NorthWestern Energy merger has 6 of 7 required approvals with Montana the last, and the 2026 equity need of $50 million to $70 million is nearly satisfied, with $50 million issued year to date under the ATM.
What We’re Watching
- The 1.8 GW definitive-agreement target slipped from June 30 to Q3 2026, and the generation reservation agreement runs only through August 31.
- The 600 MW in plan is 'primarily driven by Microsoft and Meta' — two multi-utility customers with options elsewhere.
- Montana is the last merger approval; two parties did not settle and object on data-center grounds. A decision is expected mid-October to mid-November.
- First-half 2026 weather was an $0.18 per share headwind, and combined financing and depreciation costs were $0.29 higher.
The thesis is strengthening on optionality and unchanged on booked earnings. The pipeline and customer cash are growing, the merger is one approval from closing, and guidance has been reaffirmed twice. But the largest project is still unsigned, its economics undisclosed, and the printed financials show rate-and-rider recovery partly offset by weather, financing, and depreciation. The open question is whether the 1.8 GW project converts to definitive agreements in Q3 2026 and on what terms.
Earnings
Black Hills reported Q2 2026 revenue of $452.8 million, up from $439.0 million a year earlier. Adjusted EPS was $0.54 versus $0.38 in Q2 2025, and GAAP EPS was $0.50 including $0.04 of merger-related transaction costs. New rates and rider recovery added $0.21 per share, more than offsetting a combined $0.12 of higher financing and depreciation costs.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $453M | $781M | $439M | +3.1% |
| Gross margin | 74.9% | 27.9% | 38.1% | +3680bps |
| EBITDA | $172M | $275M | $152M | +13.1% |
| EPS | $0.50 | $1.73 | $0.38 | +32.2% |
| Refundable customer advances | Up to $377M | $201M | n/a | — |
Of more than 3 gigawatts of data center opportunities, only 600 megawatts is included in our current plan… In addition, we are currently actively negotiating to service a pipeline of more than 2.5 gigawatts. All of which would be additive to our current plan.— Linden R. Evans, CEO, 2026-08-06
Management tone: Management's tone on the Q2 2026 call was confident on the large-load pipeline and more specific than on the Q1 call, disclosing a new 75 MW opportunity and separating the 600 MW in plan from the more than 2.5 GW in negotiation. At the same time, they built in more leeway: the 1.8 GW definitive-agreement target moved from June 30 to Q3 2026, and management said shareholders should not panic if the end-of-quarter target slips. They were direct on the Crusoe exit and on Montana opposition, but declined to size the generation investment. The call drew only one analyst question.
Management Guidance
Management reaffirmed FY2026 adjusted EPS guidance of $4.25 to $4.45, which it says represents 6% growth at the midpoint over 2025, and said it is on track. It reiterated confidence in the upper half of a 4% to 6% long-term EPS growth target and a 55% to 65% dividend payout target. Prior-call assumptions included O&M growth of approximately 3.5% off 2025 and an effective tax rate of approximately 14% for the full year. The 2026 total equity need of $50 million to $70 million is nearly satisfied, with $50 million issued year to date under the ATM.
Trajectory
Reported results are steady but weather- and cost-sensitive. Q1 2026 revenue was $780.7 million, down from $805.2 million a year earlier, and Q2 2026 revenue was $452.8 million versus $439.0 million. The Q1 decline was a gas story — residential and commercial gas revenue fell on lower volumes — while industrial electric sales rose to $56.2 million from $48.2 million, which the filing attributes primarily to Wyoming Electric LPCS and BCIS tariff customers. Rate-and-rider recovery is the dominant positive and weather the dominant negative: in Q1, new rates and riders added $13.3 million of electric margin and $8.8 million of gas margin, while weather took $3.2 million from electric and $13.2 million from gas. Depreciation and financing costs keep rising as capital is placed in service.
The Model
Black Hills's model projects FY+1 revenue of $2,340 million and EBITDA of $880 million, a 37.6% margin, rising to FY+2 revenue of $2,455 million and EBITDA of $945 million, a 38.5% margin. The near-term anchor is regulated rate-base growth funded by a capital plan of nearly $1 billion in 2026 and about $4.7 billion over five years. The step-up into FY+2 assumes continued rate-and-rider recovery; management describes the more than 2.5 GW of data-center demand in negotiation as additive to the current plan.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $2.3B | $2.3B | $2.5B |
| YoY Growth | — | +1.3% | +4.9% |
| EBITDA | $820M | $880M | $945M |
| EBITDA Margin | 35.5% | 37.6% | 38.5% |
Projections are the median of 5 independent model runs. The model’s revenue sits 16.6% below analyst consensus.
Management reaffirmed FY2026 adjusted EPS guidance of $4.25 to $4.45, which it says represents 6% growth at the midpoint over 2025, and said it is on track. It reiterated confidence in the upper half of a 4% to 6% long-term EPS growth target and a 55% to 65% dividend payout target. Prior-call assumptions included O&M growth of approximately 3.5% off 2025 and an effective tax rate of approximately 14% for the full year. The 2026 total equity need of $50 million to $70 million is nearly satisfied, with $50 million issued year to date under the ATM.
What Could Go Right — and Wrong
- The 1.8 GW Cheyenne project converts to definitive agreements in Q3 2026 and a CPCN follows, turning the largest pipeline item into contracted load.
- The 75 MW opportunity and Microsoft's Cheyenne land expansion convert, widening the customer set beyond Microsoft and Meta.
- The LCT-CAM becomes effective in January 2027, letting Black Hills recover large-load transmission costs directly from those customers.
- Montana approves the NorthWestern Energy merger, closing the deal in the second half of 2026.
- Rate cases in South Dakota, Wyoming, Colorado, and Arkansas resolve at or near requested returns.
- The 1.8 GW definitive agreements slip again past Q3 2026, leaving the more than 2.5 GW pipeline as narrative.
- Montana denies or delays the merger, and data-center opposition proves able to interfere with the growth strategy.
- Microsoft or Meta redirects its Cheyenne build elsewhere, hitting the 600 MW in-plan load and the 2028 earnings contribution.
- Rate-case outcomes come in below requested returns, or the $400 million note refinancing prices above the 3.15% coupons.
- Supply-chain delays for transformers and generation units push construction timelines and costs.
Looking Ahead
Over the next 12 months the story turns on conversion. Definitive agreements for the 1.8 GW project are targeted for Q3 2026, with a 75 MW opportunity from a different customer also expected then and a CPCN to follow. Meta's Cheyenne load is expected to start ramping later in 2026. Montana's merger decision is expected between mid-October and mid-November, and the LCT-CAM is expected to take effect in January 2027. Rate cases and the refinancing of $400 million of notes due January 2027 round out the calendar.
- August 31, 20261.8 GW reservation deadline — End of the generation reservation agreement for the Cheyenne project.
- Q3 20261.8 GW definitive agreements — Target for multiple agreements, including a generation facilities agreement.
- Q3 202675 MW deal expected — Separate data-center customer, part of the more than 2.5 GW pipeline.
- Mid-Oct to mid-Nov 2026Montana merger decision — Final required approval for the NorthWestern Energy merger.
- Later in 2026Meta Cheyenne load ramp — Customer load at Meta's AI data center expected to begin ramping.
- January 2027LCT-CAM effective — Wyoming mechanism to recover large-load transmission costs.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $2.1B | $2.3B | $2.3B | +8.6% |
| Gross Margin | 39.5% | 38.6% | 42.9% | 93bps |
| EBITDA | $773M | $820M | $840M | +6.0% |
| EBITDA Margin | 36.3% | 35.5% | 36.5% | 85bps |
| Net Income | $273M | $292M | $299M | +6.7% |
| Free Cash Flow | −$25M | −$146M | −$305M | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)42.9%
- EBITDA Margin (TTM)36.5%
- Net Margin (TTM)13.0%
- ROIC5.2%
- FCF Conversion-36.3%
- SBC / Revenue0.4%
The Company
Black Hills Corporation is a regulated electric and natural gas utility. Its Electric Utilities segment generates, transmits and distributes electricity to approximately 227,000 customers in Colorado, Montana, South Dakota, and Wyoming, and its Gas Utilities segment serves approximately 1,138,000 natural gas customers in Arkansas, Colorado, Iowa, Kansas, Nebraska, and Wyoming — roughly 1.365 million customers across eight states. For the AI buildout, the segment that matters is Wyoming Electric, where management is signing large-load customers, including hyperscale data centers, in Cheyenne.
The company operates as a traditional regulated utility: it earns a return on invested capital through state rate cases and riders, with a stated cadence of 3 to 4 rate reviews a year across its eight-state territory. Its growth engine is a capital plan of nearly $1 billion in 2026 and about $4.7 billion over five years, recovered through rates and riders as assets are placed in service. It owns generation, including coal and gas plants in Wyoming and Colorado and a 99 MW dual-fuel unit under construction in Rapid City. It targets 14% to 15% FFO to debt, 100 basis points above a 13% downgrade threshold, and net debt at or below 55% of total capitalization.
Business Segments
Competitive Landscape
As the incumbent regulated electric utility in Cheyenne, Black Hills has a structural position in its service territory — a data center locating there needs a utility to serve it. But the position is not exclusive. AEP has disclosed a Wyoming fuel-cell initiative at a Cheyenne site with an undisclosed hyperscaler, and Microsoft and Meta are multi-utility customers that build elsewhere: AEP names Microsoft as a large-load customer in Indiana, and ETR names Meta in a Louisiana expansion docket. Peers are also converting pipelines slowly and after heavy filtering.
- NorthWestern EnergyPending merger partner; also labeled a competitor in the structured wiring, an inconsistency the source flags as low-confidence.
- Labeled a competitor in the structured wiring; also a 25% co-owner of the Wygen III coal plant.
- PacifiCorpLabeled a competitor in the wiring; also holds 80% of the Wyodak plant that Black Hills South Dakota Electric part-owns.
Supply Chain
Black Hills sits downstream in the AI chain as the regulated utility that powers Cheyenne data centers. It buys generation equipment and fuel and sells electricity to hyperscalers. Of its named counterparties, only merger partner NorthWestern Energy mentions Black Hills on its own call.
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