Avangrid Earnings: NECEC To Resume Construction as PNM Acquisition Drags On

We are maintaining our $39 per share Avangrid AGR fair value estimate after the company reported second-quarter adjusted earnings of $0.21 per share, compared with $0.46 in the same year-ago period. Our narrow moat is also unchanged.

Earnings in the quarter were negatively affected by higher operating expenses and interest costs. Management will work to address recovery of the higher costs through regulatory filings. We continue to believe the company’s earnings growth guidance of 6%-7% through 2025 will be difficult to achieve, based on expectations for regulatory challenges and a slowdown in offshore wind development.

The company reaffirmed its full-year operating earnings guidance of $2.20-$2.35 per share, and we expect the company to achieve the low end of the range. Operating guidance includes expectations for $0.24-$0.28 for the partial sale of the company’s Kitty Hawk lease area and other onshore partnerships. Eversource’s announced transaction for the sale of undeveloped offshore wind acreage in the Northeast in late May suggests weak pricing for offshore assets, creating uncertainty around the valuation of the planned sale. Implementation of approved rate outcomes in the second half of the year should support results.

In Maine, an approved two-year rate agreement allows for 9.35% returns, below peer group returns but highlights an improvement in regulatory conditions after penalties were imposed for poor customer service. The company plans to resume the New England Clean Energy Connect project, a positive win for management after numerous regulatory and political hurdles. After terminating its offshore wind contract in Massachusetts given increasing costs, Avangrid plans to rebid in the upcoming request for proposal. We expect these efforts to be unsuccessful. The company further extended its long-tenured PNM acquisition through the end of December, and we continue to exclude the transaction from our forecast.