Morningstar | Portland General Resource Plan Filing Could Detail Potential Growth Opportunities
We are reaffirming our $39 fair value estimate and narrow moat and stable moat trend ratings for Portland General Electric after the company reported $0.82 earnings per share in the first quarter of 2019, up from $0.72 in the first quarter of 2018.Earnings remain on track to meet our full-year estimate and support our 4% average annualized earnings growth forecast through 2022. Management reaffirmed its $2.35-$2.50 EPS guidance for 2019, in line with our outlook.
We continue to forecast that Portland General will average $500 million of annual capital investment in 2019-22 plus $160 million for the Wheatridge wind-solar-battery project, which is on track to go into service by the end of 2020. These investments are the primary driver of our earnings growth outlook.
We think there could be upside to PGE's growth investment plan based on negotiations involving its next integrated resource plan filing expected this summer. Management said they plan to assess potential investments in energy efficiency, renewable energy, and generation capacity beyond 2021 based on the outcome of its IRP filing. Incremental investment likely would lead us to raise our fair value estimate.
The board recently approved a 6.3% dividend increase to $1.54 per share annualized. Management also raised the bottom end of its payout ratio target range to 60% from 50%. The high end remains 70%. Although dividend policy does not impact our fair value estimate, we think this is a good indication that management believes regulation will remain constructive and it will be able to recover its capital investments with minimal regulatory lag.
Portland General Electric is an electric utility engaged in the generation, purchase, transmission, distribution, and retail sale of electricity in the state of Oregon. The company also participates in the wholesale market by purchasing and selling electricity and natural gas. The company's generating facilities consist of thermal plants (natural gas- and coal-fired), wind farms, and hydroelectric. The company owns or has contractual rights associated with transmission lines that deliver electricity from its generation facilities to its distribution system in its service territory and also to the Western Interconnection.
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