Morningstar | OGE Posts Strong 2018 Results; Enable's Moaty Gulf Run Pipeline a Positive
We are reaffirming our no-moat rating and $34 per share fair value estimate after OGE Energy reported strong earnings for 2018 and initiated 2019 guidance. Earnings in 2018 were $2.12 per share versus $1.92 in 2017 after adjusting for the benefit of the 2017 Tax Cut and Jobs Act. The reported EPS were $0.04 above our estimate and $0.05 higher than consensus. Management initiated a 2019 EPS guidance range of $2.05-$2.20, placing our $2.11 estimate near the midpoint.Oklahoma Gas & Electric contributed $1.64 per share versus our estimate of $1.60 per share. Enable contributed $0.54 per share, $0.03 higher than our estimate. However, holding company drag was $0.06 per share versus our estimate of $0.04 per share.
OG&E benefited from favorable weather and strong customer growth. However, higher depreciation expense from the March 2017 Oklahoma rate order and new assets placed in service that have not yet been included in rates partially offset the positive variances. However, 2018 EPS were still $0.11 higher than 2017.
Enable continues to post solid results and paid $141 million of distributions to OGE in 2018. The earnings contribution was $0.15 per share higher than 2017 after adjusting for tax reform benefits. Gathered volumes have increased for 12 straight quarters.
On Feb. 5, Enable announced that Golden Pass LNG will be the cornerstone shipper for the Gulf Run Pipeline project. The proposed pipeline will run from northern Louisiana to the LNG facility on the Gulf Coast and is expected to be completed in 2022.
The 20-year contract from affiliates of Qatar Petroleum and ExxonMobil likely eliminates price and volume risk and is an intangible asset that we believe is a source of the pipeline’s moat. In addition, a competitor will find it difficult to justify building another pipeline once Enable has this cornerstone customer, creating an efficient-scale advantage for Gulf Run. The moaty pipeline is a solid positive for no-moat OGE Energy.
OGE Energy is a holding company. Through its subsidiaries, the company is an energy and energy services provider providing physical delivery and related services for both electricity and natural gas primarily in the south central United States Co. conducts these activities through two business segments: electric utility, which generates, transmits, distributes and sells electric energy in Oklahoma and western Arkansas; and natural gas midstream operations, which consist of the company's investment in Enable Midstream Partners, LP, which is primarily engaged in the business of gathering, processing, transporting and storing natural gas.
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