Morningstar | Duke Energy Navigates Difficult Hurricane Season
We are reaffirming our $87 per share fair value estimate and stable, narrow moat ratings after Duke Energy reported third-quarter operating earnings of $1.65 per share compared with $1.59 in the same year-ago period. Management narrowed its 2018 earnings guidance to $4.65-$4.85 from the prior range of $4.55-$4.85 per share, in line with our expectations. Management reaffirmed its 4% to 6% growth rate target through 2022, also in line with our 5% forecast.During the quarter, and into the fourth quarter, Duke Energy dealt with two hurricanes in Florida and the Carolinas, Michael and Florence. Between the two hurricanes, Duke restored electricity to 2.8 million customers. Improvements in grid resiliency and storm hardening helped improve restoration times, which we think could lead to more investments to further strengthen the grid against future storms. Financially, there is little impact to Duke as the company will be allowed to recover any prudent storm-related expenses. Additionally, initial environmental concerns from coal ash proved to be unwarranted.
With the regulatory calendar past Duke in the Carolinas, and having regulatory clarity in Florida, investors can now focus on Duke's implementation of its capital growth plan. Grid modernization is one of Duke's most attractive investment opportunities, which includes a recent announcement of a $500 million battery storage investment.
All major permits have been received for the company's investment in the Atlantic Coast Pipeline, or ACP. Costs for the ACP increased to $7.0 billion from $6.5 billion, an increase of $500 million from the prior estimate. Duke and majority partner Dominion will now pursue a phased-in service with the pipeline to be in full operation by mid-2020. We don't expect the delay or increase in capital expenditures will have a material impact on our fair value estimate. We had already assumed a ramp up in capacity for the line.
Duke Energy is a holding company. Through its subsidiaries, the company operates as an energy company. The company's segments include: Electric Utilities and Infrastructure, which provides retail electric service through the generation, transmission, distribution and sale of electricity to customers within the Southeast and Midwest regions of the United States; Gas Utilities and Infrastructure, which conducts natural gas operations, as well as owns, operates and has investments in various pipeline transmission and natural gas storage facilities; and Commercial Renewables, which acquires, develops, builds, operates and owns wind and solar renewable generation throughout the continental United States.
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