Morningstar | Xcel's 2018 Results and 2019 Investment Outlook Support Our Growth Forecast
We are reaffirming our $41 fair value estimate for Xcel Energy after the company reported earning $2.47 per share on an adjusted basis for full-year 2018, up 7% as expected. We also are reaffirming our narrow moat and stable moat trend ratings. Management’s $2.55-$2.65 EPS guidance for 2019 remains in line with our estimate.Management also reaffirmed its 5%-7% long-term earnings growth rate, which it had raised from 5%-6% late last year. We continue to believe the high end is a bold target given the regulatory uncertainty Xcel continually faces. Our 2019 earnings estimate and the midpoint of management's guidance imply 5% earnings growth this year. We continue to believe 6% long-term earnings growth is most likely.
Xcel's five-year, $20 billion capital investment plan in 2019-23 is in line with our forecast and robust enough to support the high end of management's long-term earnings growth. However, Xcel must avoid any regulatory setbacks to hit the high end of that growth range. In particular, key regulatory activity in its largest jurisdictions, Minnesota and Colorado, later this year will have a significant impact on whether Xcel can meet that growth target.
We expect the board to announce a dividend increase in February. We think Xcel has the financial capacity to grow its dividend in line with earnings, but the board has made a habit of $0.08 per share annualized increases. A similar move would imply a 5% increase this year and what we consider a comfortable 62% payout ratio. That could set the board up to boost its pace of dividend increases in 2020 and beyond to keep up with earnings growth if everything goes according to 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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