EUR 850.00 For Business Accounts Only

Morningstar | 1Q Progress Highlights Xcel's Move Toward Cleaner and Greener Profile

We are reaffirming our $42 fair value estimate for Xcel Energy after the company reported earning per share of $0.61 in the first quarter of 2019, up 7% from the first quarter of 2018. We also are reaffirming our narrow moat and stable moat trend ratings. Our 2019 EPS estimate remains in line with management’s $2.55-$2.65 guidance.

Management also reaffirmed its 5%-7% long-term earnings and dividend growth rate, which relies heavily on Xcel's strategy to pursue renewable energy growth. Our 2019 earnings estimate and the midpoint of management's guidance range imply 5% growth this year, but we think Xcel can boost that to average 6% over the next three to five years.

Xcel recently laid out a roadmap to reduce its systemwide carbon emissions by 80% by 2030 and eliminate all of its systemwide carbon emissions by 2050. This strategy largely drives its five-year, $20 billion capital investment plan through 2023. However, it will require regulatory, legislative, and public policy support to achieve its goal.

We think Xcel can achieve at least the bottom end of its growth target based on public policy and legislation already in place. Reaching the top end of the range will require constructive regulatory decisions and expansion of environmental policies in some states. Key regulatory activity in its largest jurisdictions, Minnesota and Colorado, later this year will have a significant impact on whether Xcel can meet its near-term growth target.

Xcel's board came through with a $0.10 per share, or 6.6%, annualized dividend increase in February, in line with our expectation. After a string of $0.08 per share annualized increases, we expected the board to step up the increase to keep up with our earnings growth outlook. We think Xcel's 62% payout on 2019 projected earnings with the new dividend is sufficient to fund its growth projects and ongoing dividend increases.