Morningstar | Poor Wind Resources Continue to Drag on Avangrid's Results; Guidance Lowered. See Updated Analyst Note from 24 Jul 2019
We are reaffirming our $51 fair value estimate and stable, narrow moat rating after Avangrid reported second-quarter operating earnings per share of $0.33, down from $0.41 in the same year-ago period. Management revised its 2019 operating EPS guidance to $2.25-$2.35 from $2.25-$2.40. We don't expect to change our $2.28 estimate.Avangrid's disappointing wind resources continued into the second quarter. We recently cut our long-term expectations for wind resources, resulting in a $2 per share cut in our fair value estimate. If wind resources continue to be weak, we may further reassess our long-term expectations. Poor pricing at the unit's merchant wind units also hurt results, highlighting the importance of management's continued work toward putting in place long-term contracts that help mitigate commodity risk. Avangrid secured a new power purchase agreement at the 22-megawatt Mountain View II site in the quarter.
Management increased its renewable energy pipeline to 15.9 gigawatts, up 0.5 GW from the first quarter. Plans for 1 GW of renewable installation in 2019 remains on track. The offshore 800 MW Vineyard Wind project has secured 80% of the supply chain but continues to have difficulty working through the numerous required regulatory approvals, most recently being dealt a setback in a delayed environmental impact study.
At Networks, numerous smaller storms, which the utilities can't defer for future recovery, increased operating costs. Rate cases at NYSEG and RGE aim to address cost recovery for minor storms and resiliency investments. A billing mishap in Maine has strained regulatory relationships in the region.
Management notes efforts from the Forward 2020+ efficiency program will start to be recognized in the second half of the year, which management forecasts at $70 million-$85 million pretax. Management is targeting $100 million in pretax savings.
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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