Morningstar | Impressive Load Growth Aids WEC Energy's Earnings
We are reaffirming our $61 fair value estimate and narrow economic moat rating after WEC Energy Group reported second-quarter operating earnings per share of $0.73 compared with $0.63 in the same year-ago period. Management increased its EPS guidance to $3.26-$3.32 from $3.26-$3.30. Near-term earnings impacts due to weather have no material effect on our fair value estimate.For the quarter, similar to its utility peers, WEC's earnings were driven by strong demand across WEC's electricity and natural gas segments. Colder spring temperatures drove above-average demand for natural gas, and a warm start to the summer drove cooler electric demand. Importantly, weather-normalized sales were strong across WEC's service territories. On a weather-normalized basis, retail electric deliveries, excluding the iron ore mines, were up 0.90% from the same year-ago period. Natural gas volumes continued to show strength, up 6.6% quarter over quarter on a weather-normalized basis.
Management disclosed another renewable investment: an 80% interest in the Bishop Hill III Wind Energy Center for $148 million. This is in addition to the previously announced Upstream Wind Energy Center. We continue to expect management to be opportunistic in purchasing additional renewable assets as part of its planned $900 million infrastructure spending. A strong balance sheet allows WEC to be opportunistic as some peers look to sell assets to allay equity issuances due to tax reform. We like these investments, which provide utilitylike returns supporting our narrow moat.
WEC is progressing well on its proposed 350 megawatts of solar development, proposing to co-own two solar third-party solar projects with Madison Gas and Electric. WEC would own 100 MW each of the Badger Hollow Solar Farm and the Two Creeks Solar Project. The total price tag of $260 million supports our earnings growth expectations and is included in WEC's $11.8 billion five-year capital plan.
WEC Energy Group is a holding company. Through its subsidiaries, the company provides regulated natural gas and electricity, and nonregulated renewable energy. The company's segments include: Wisconsin, which generates and distributes electric energy and provides retail natural gas distribution service; Illinois, which includes the natural gas utility operations; Electric Transmission, which owns, maintains, monitors, and operates electric transmission systems in Wisconsin, Michigan, Illinois, and Minnesota; and Non-Utility Energy Infrastructure, which owns and leases generating facilities to its Wisconsin Electric Power Company subsidiary and owns underground natural gas storage facilities in Michigan.
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