EUR 850.00 For Business Accounts Only

Morningstar | Size and Visibility Improves for DTE Energy's Nonutility Investments

A solid Michigan economy due in large part to a strong manufacturing recovery and regulatory frameworks that are constructive for investors have resulted in solid earnings growth at DTE Energy's electric and gas utilities.We expect high-single-digit growth in utility earnings over the next five years, driven in large part by grid investment at DTE Electric and pipeline replacement at DTE Gas. DTE Electric is also investing heavily in gas power generation and renewable energy to replace its aging coal fleet. We estimate DTE will invest almost $14 billion at its utilities during the next five years in a Michigan regulatory framework that is constructive for investors. We expect over 8% annual earnings growth for DTE's gathering, storage, and pipeline segment during the next five years, starting with 2018 operating earnings that increased almost 50% over 2017. The strong growth stems from what we expect to be expansion of the NEXUS and Link natural gas pipelines as cheap shale gas continues to gain market share for heating and electricity generation. In addition, we expect accretive acquisitions to continue supporting the strong growth.We have less confidence in the level of earnings contribution from the power and industrial segment as reduced emissions fuel, or REF, earnings decline. We believe earnings from this segment will shrink about 15% over the next five years. Although DTE management has been one of the most successful in the industry at expanding non-utility businesses, replacing REF earnings that begin to roll off in 2019 will be challenging.Our consolidated EPS annual growth estimate over the next five years is 6.4%, starting with the initial 2018 earnings guidance. This places our earnings growth estimate in the upper half of management's 5%-7% target range. We also expect shareholders to be rewarded with solid dividend increases. DTE shareholders received 7% increases in 2017 and 2018, and we expect this level of annual increases to continue for the foreseeable future.