Morningstar | Infrastructure Investments Drive Continued Growth For Eversource
We are reaffirming our $53 fair value estimate and no-moat and stable moat trend ratings for Eversource Energy after it reported earning $3.25 per share for the full year 2018, in line with our estimate and management's guidance range. Earnings were up from $3.11 per share in 2017.Management initiated 2019 earnings guidance range of $3.40-$3.50 and extended its 5%-7% annual earnings growth target through 2023. Both of these are in line with our forecasts.
Electric transmission remains the highest-growth segment with 2018 earnings up $0.11 per share, or 9%, year over year. Natural gas distribution also got a boost in the fourth quarter from higher rates at Yankee Gas, as we expected. These higher rates will carry over to support 2019 earnings growth.
Our multiyear growth outlook continues to depend on Eversource investing $7.5 billion in 2019-21. This is slightly ahead of management's budget primarily because we think the company can find incremental investment opportunities to support energy policy in the Northeast.
One example of Eversource's incremental growth opportunities is its expanded joint venture agreement with Orsted announced in February. For what is effectively a $225 million down payment, Eversource could end up being the largest offshore wind farm owner in the U.S. if its projects go as planned. We think this option purchase is a good use of shareholder funds.
Eversource raised its dividend 6% earlier this month, in line with our long-term earnings growth outlook. Although dividend policy doesn't affect our fair value estimate, we consider this a sign of good stewardship. We expect similar dividend increases for at least the next several years, keeping its payout ratio slightly above 60%.
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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