Morningstar | Eversource's New Investment Opportunities Support Growth Outlook
We are reaffirming our $53 fair value estimate and no-moat and stable moat trend ratings for Eversource Energy after it reported earning $0.76 per share in the second quarter, up 6% from $0.72 in the second quarter of 2017. First-half earnings remain on track to meet our full-year expectations. Management reaffirmed its full-year earnings guidance of $3.20-$3.30 per share and its 5%-7% long-term growth rate, both in line with our estimates.Electric transmission earnings growth remains a primary driver in our 6% consolidated earnings and dividend growth outlook through 2021. Transmission has been the largest growth driver so far this year and we expect that to continue based on the company’s investment plan. Transmission added $0.05 per share in the quarter and $0.09 in the first half, year over year.
Eversource's announced new capital investment opportunities are in line with what we expected. These new investments, which we already incorporate in our forecasts, will help Eversource maintain at least a 5% earnings growth rate even without other single large investment projects it has proposed. The new investment helps eliminate the $1 per share drag on the fair value estimate that would have resulted from canceling the $1.6 billion Northern Pass project.
Aquarion Water added $0.02 per share in the second quarter and $0.03 in the first half, part of its first full year after the December 2007 acquisition. We expect Aquarion earnings to grow next year with investment and acquisitions, but it could be difficult to match the one-time benefit realized this year. Eversource’s other segments will have to pick up for the new Aquarian earnings next year to maintain a 5%-7% growth rate.
Eversource’s regulatory work to decouple the bulk of its electric revenues from usage should pay off as electric demand remains weak. We think decoupling is a positive for shareholders as it tends to result in more predictable and stable cash flows, supporting a strong dividend.
Eversource Energy is a public utility holding company. Through its subsidiaries, the company has four segments: electric distribution, which is engaged in the distribution of electricity to retail customers in Connecticut, Massachusetts and New Hampshire; electric transmission, which owns and maintains transmission facilities that are part of an interstate power transmission grid over which electricity is transmitted throughout New England; natural gas distribution, which distributes natural gas to communities in Massachusetts and cities and towns in Connecticut; and water distribution, which provides water services in towns and cities in Connecticut, Massachusetts and New Hampshire.
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