Morningstar | Con Edison Reports Solid 3Q, Narrows Guidance; Raising FVE to $78
We are increasing our fair value estimate to $78 from $77 per share after no-moat Consolidated Edison reported solid third-quarter 2018 adjusted EPS of $1.57 per share versus $1.47 in the year-ago period. Con Ed reported adjusted EPS growth in the recently ended quarter of $0.08 at its utilities, $0.03 in its clean energy business segment, and $0.01 at Con Edison transmission versus third-quarter 2017. These favorable variances were partially offset by $0.02 per share higher expenses at the parent.We bumped our 2018 earnings estimate to $4.30 per share from $4.26 per share due in part to the strong year-to-date earnings. Con Ed management narrowed its full-year earnings guidance to the top end of its previous range, to $4.25-$4.35 per share versus the previous guidance of $4.15-$4.35 per share. The change in our earnings estimate for 2018 did not have a material impact on our fair value estimate.
What did increase our fair value estimate by $1 per share was our assumptions incorporating the benefit of the acquisition of a Sempra Energy subsidiary that owns 981 MW of solar energy farms, including 371 MW Con Ed already jointly owns. The acquisition is expected to close before year-end, resulting in the issuance of $715 million of equity, $825 million of new nonrecourse debt, and the assumption of $576 million of existing nonrecourse debt.
On a GAAP basis, the transaction is expected to be accretive by $0.50 per share in 2018 due to purchase accounting adjustments, dilutive by $0.25 in 2019 and $0.15 in 2020 due to accounting for existing third-party tax equity investments. We assume the project has no incremental benefit on operating earnings in 2018-20 but would be dilutive to EPS due to the roughly 10 million additional common shares and interest on incremental debt. The project is expected to generate $485 million of adjusted 2019 EBITDA. The incremental cash flow drives our fair value estimate increase.
Consolidated Edison is a holding company. Through its subsidiaries, the company is engaged in provision of energy services. The company's subsidiaries include: Consolidated Edison Company of New York, Inc.'s principal business operations are its regulated electric, gas and steam delivery businesses; Orange & Rockland Utilities, Inc.'s principal business operations are its regulated electric and gas delivery businesses; Con Edison Clean Energy Businesses, Inc. develops, owns and operates renewable and energy infrastructure projects and provides energy-related products and services to wholesale and retail customers; and Con Edison Transmission, Inc. invests in electric and gas transmission projects.
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