Morningstar | Xcel Stays on Steady Growth Path
We are reaffirming our $40 fair value estimate and narrow moat rating for Xcel Energy after the company announced EPS of $0.52 in the second quarter, up from $0.45 in second-quarter 2017. About half of the jump in earnings was due to unusually warm weather, which we don't expect to continue.Management raised its 2018 EPS guidance by $0.04 per share to $2.41-$2.51, in line with our estimate.
Xcel's $18.5 billion of capital investment planned through 2022 continues to drive core earnings growth. We expect Xcel to finish the year slightly ahead of our 6% annual earnings-growth outlook, owing to the favorable weather in the first half. We expect normal weather going forward will bring the average growth rate back to 6%. We anticipate consistent dividend increases near 6%.
Regulatory developments in Colorado during the next nine months could affect Xcel's investment plan and earnings growth. Regulators recently took a hard line on Xcel's base-rate increase request for its gas system. Regulators approved a 9.35% allowed return on equity, among the lowest in the U.S., and denied Xcel's proposal to use a forward test year, which would reduce regulatory lag.
State regulators could rule on Xcel's $1 billion Colorado Energy Plan this fall, and we expect Xcel to initiate an electric base-rate review in early 2019. If regulators take a similarly hard line on Xcel's electric utility, Xcel might pull back some of its $6 billion planned investment in Colorado during the next four years. We still assume that regulators will approve 90% of Xcel's request, along with its revised $1 billion energy plan.
Xcel Energy is a regulated electric and natural gas delivery company which serves customers in mid-western and western states, including portions of Colorado, Michigan, Minnesota, New Mexico, North Dakota, South Dakota, Texas and Wisconsin. The company's reportable segments include: regulated electric utility, which generates, transmits and distributes electricity in Minnesota, Wisconsin, Michigan, North Dakota, South Dakota, Colorado, Texas and New Mexico; regulated natural gas utility, which transports, stores and distributes natural gas primarily in portions of Minnesota, Wisconsin, North Dakota, Michigan and Colorado; and other, which includes steam revenue and appliance repair services.
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