Avangrid Earnings: Higher Costs Pressure Earnings

We are maintaining our $39 per share Avangrid AGR fair value estimate after the company reported first-quarter adjusted earnings of $0.64 per share, compared with $0.69 in the same year-ago period. The company reaffirmed its full-year operating earnings guidance of $2.20 to $2.35 per share, which we expect the company to achieve on the low end of the range. Our narrow moat and stable moat trend remain unchanged.

We continue to remain below the company’s earnings growth guidance of 6% to 7% based on expectations for headwinds during regulatory proceedings and a slowdown in offshore wind development. The company recently paid a $0.44 per share dividend, an annualized payout of 80% of earnings, which is among the highest of its peers. We expect minimal dividend growth throughout our forecast.

Earnings in the quarter were weighed down by higher operating costs, interest, depreciation, and taxes. These negatives were only partially offset by rate increases at its regulated utilities and favorable renewable operating performance.

At its regulated utilities, the company is working on achieving constructive outcomes in pending rate cases in New York, Maine, and Connecticut that would allow recovery of higher costs and investments. We expect supportive outcomes across the company’s regulatory proceedings, though we think this could be challenging as some of Avangrid’s regulatory environments can be challenging.

For New England Clean Energy Connect, the company did receive a positive outcome in a Maine court ruling that would allow the company to continue construction on the transmission line. The company must work through potential appeals and analyze cost considerations before moving forward. The company further extended its long-tenured PNM acquisition three months through the end of July. The parties have filed an appeal to the state Supreme Court. Successfully completing both would have a slight positive effect on our fair value estimate.