Morningstar | Poor Wind Resource and Numerous Storms Headwinds for Avangrid's 2018 Results
We are reaffirming our $53 fair value estimate and stable, narrow moat ratings after Avangrid reported full-year operating earnings per share of $2.21, flat with 2017. Management initiated 2019 operating EPS guidance of $2.25-$2.40, slightly below our expectations. We plan to lower our outlook to within management's guidance, but we do not expect this to have a material change on our fair value estimate.Avangrid's weak 2018 earnings were due to multiple reasons. At the regulated networks segment, operating costs climbed as a result of unrecoverable costs for numerous smaller storms. Management plans to address these smaller storms and additional resiliency investments through future regulatory negotiations.
At the renewable energy unit, wind resource below long-term expectations reduced earnings. Management expects lower wind resource to continue into 2019, due partly to unfavorable weather thus far in the year. Lower wind resource was the main reason for the lower-than-expected 2019 earnings guidance. Every 100-basis-point decrease in our long-term expectations for wind resource reduces our fair value estimate by $2 per share. We expect further guidance at next week's investor conference.
Strategically, Avangrid navigated its regulatory calendar well. Utilities in New York, Connecticut, and Massachusetts all received constructive regulatory outcomes. Settlement discussions continue in Maine. Management expects a resolution at the end of March. Avangrid expects to file rate cases at its New York subsidiaries in the second quarter. The company's two large growth projects, regulated New England Clean Energy Connect and renewable energy project Vineyard Wind, are on track.
Avangrid is an energy services holding company engaged in the regulated energy distribution business through its subsidiary, Avangrid Networks, Inc. (Networks), and in the renewable energy generation business through its subsidiary, Avangrid Renewables Holding, Inc. (ARHI). ARHI in turn holds subsidiaries including Avangrid Renewables, LLC (Renewables). Networks owns and operates its regulated utility businesses through its subsidiaries, including electric transmission and distribution and natural gas distribution, transportation and sales. Renewables operates a portfolio of renewable energy generation facilities primarily using onshore wind power and also solar, biomass and thermal power.
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