Morningstar | DTE Reports in Line 2018 Results and Announces Bolt-On Acquisition for Nexus
We are reaffirming our $107 per share fair value estimate after DTE Energy reported 2018 operating earnings in line with our estimate and reiterated 2019 earnings guidance. The company also announced its 50%-owned Nexus joint venture will acquire another midstream asset that is expected to be modestly accretive to earnings.Operating earnings were $6.30 per share in 2018, equal to our estimate and $0.03 lower than consensus. As expected, the full-year results for DTE’s electric and natural gas utilities benefited from warm summer weather and cold winter weather. Lower income tax rates at its non-regulated Gas Storage & Pipeline segment and higher REF volumes benefited the Power & Industrial Projects segment. Every business line, including Energy Trading, had a solid year, resulting in record operating earnings that were up 13% from 2017.
Our 2019 operating EPS estimate of $6.30 is at the upper end of management’s $5.97-$6.33 guidance range. Our flattish earnings outlook is due in large part to our assumption of normal weather and a tax equity transaction that accelerated cash flows but will reduce REF earnings in the P&I segment by about $0.20 per share. Although we are at the upper end of guidance, we note that this management team has exceeded its original annual earnings guidance for 10 consecutive years.
DTE announced an agreement by Nexus to acquire the Generation Pipeline, a 23-mile natural gas pipeline in Northwest Ohio. The fully contracted pipeline is just four miles from Nexus, and a lateral connection is planned that would provide Nexus direct access to Toledo industrial customers. In addition, the 256-mile Nexus pipeline bringing shale gas to Michigan and Ohio is higher pressure than the Generation Pipeline, allowing for increased capacity and upside for the $150 million to $200 million investment. In our opinion, this bolt-on acquisition is consistent with the long-term strategy management has outlined for its GS&P segment.
DTE Energy is a holding company. The company is engaged in the generation, purchase, distribution and sale of electricity to customers in southeastern Michigan through its DTE Electric Company subsidiary, as well as in the purchase, storage, transportation, distribution and sale of natural gas throughout Michigan and the sale of storage and transportation capacity through its DTE Gas Company subsidiary. The company's non-utility operations are: gas storage and pipelines, which consists of natural gas pipeline, gathering, transportation, and storage businesses; power and industrial projects; and energy trading, which consists of energy marketing and trading operations.
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