Morningstar | Entergy Reports Strong 3Q; Long-Term UP&O Outlook Remains In Line. See Updated Analyst Note from 31 Oct 2018
We are reaffirming our $83 fair value estimate and no-moat rating after Entergy reported strong third-quarter consolidated operational earnings; raised its 2018 consolidated earnings guidance range; and reaffirmed its 2018 utility, parent, and other, or UP&O, segment earnings guidance and outlook through 2021.Consolidated operational earnings per share were $3.77 in the recently ended quarter versus $2.35 in the same period last year. Most of the strong performance was due to a $0.71 per share tax benefit at Entergy Wholesale Commodities and a $0.40 higher contribution from earnings at the nuclear decommissioning trusts versus last year.
Entergy raised its consolidated EPS guidance to $6.75-$7.25 from $6.25-$6.85. We have increased our 2018 EPS estimate to $7.00 from $6.61. However, consolidated operational earnings include EWC’s earnings from four nuclear units with planned closing dates between 2019 and 2022. Therefore, the performance of ongoing earnings from the UP&O segment drives our unchanged fair value estimate.
After adjusting for weather and taxes, UP&O third-quarter adjusted earnings of $2.27 per share were $0.12 better than last year, driven in large part by strong sales growth. On a weather-adjusted basis, residential and commercial sales were up 0.8% and 1.4%, respectively, and industrial sales were up a strong 3% versus the third quarter of 2017. Our earnings estimates for UP&O remain in line with Entergy’s long-term outlook.
Investors should be pleased to see that the consolidated nuclear decommissioning trust balance was greater than the asset retirement obligation liability as of Sept. 30. We hope to gain additional comfort that the wind-down of EWC’s merchant nuclear business will be cash flow neutral when we meet with Entergy senior management at the Edison Electric Institute Financial Conference on Nov. 13.
Entergy is a holding company. Through its subsidiaries, the company is an integrated energy company engaged mainly in electric power production and retail distribution operations. The company owns and operates power plants. The company has two segments: Utility, which generates, transmits, distributes and sells electric power to retail and wholesale customers in Arkansas, Louisiana, Mississippi, and Texas; and Entergy Wholesale Commodities, which includes the ownership, operation, and decommissioning of nuclear power plants, located in the northern United States, the sale of the electric power produced by its operating plants to wholesale customers, and also provides services to other nuclear power plant owners.
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