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Avangrid Earnings: With Offshore Wind Growth Limited, Focus Turns to Regulated Utilities

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We are maintaining our $33 per share fair value estimate for Avangrid AGR after the company reported third-quarter adjusted earnings of $0.27 per share compared with $0.31 in the same year-ago period.

The company reaffirmed its full-year operating EPS guidance of $2.20 to $2.35. This guidance includes expectations for $0.24 to $0.28 for the partial sale of the company’s Kitty Hawk offshore wind lease area and other onshore partnerships. Executing these sales appears to be more challenging given the current macro environment and financial headwinds facing offshore wind.

Management was able to terminate power purchase agreements at both Park City Wind and Commonwealth Wind for $64 million. We think this was the best outcome available to management, as the execution of these contracts would have resulted in significant financial losses given increasing costs and interest rates. We think pursuing additional offshore wind projects in the Northeast would bring significant risk to shareholders and would view any additional project development negatively. Management has said it will not undertake any project without significant positive financial projections and appropriate returns, which we view positively.

The company’s Vineyard Wind project has 100% of contracts locked in, which helps mitigate risk in the project. However, execution risk remains to bring the project online on time and on budget.

Similar to peers, Avangrid sees significant repowering opportunities with its onshore wind portfolio.

With offshore wind growth now limited, earnings growth will be driven by its regulated operations. In New York, the company received a final outcome that supports more than 8% rate-base growth, but the decision allowed for a 9.2% allowed return, below the average of other U.S. utilities.

CFO Patricia Cosgel announced that she will step down due to personal reasons in November. Senior Vice President and controller Justin Lagasse will act as interim CFO.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Andrew Bischof

Strategist
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Andrew Bischof, CFA, CPA, is an equity strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers regulated utilities, diversified utilities, and independent power producers.

Before joining Morningstar in 2011, Bischof was a senior treasury analyst for Mead Johnson Nutrition. Previously, he was a group audit officer for Bank of America in Chicago, and before that, an auditor for Ernst & Young.

Bischof holds a bachelor’s degree in business administration and accounting and a master’s degree in accounting from the University of Wisconsin. He also holds a master’s degree in business administration, with a concentration in finance, from Indiana University’s Kelley School of Business and the Chartered Financial Analyst® and Certified Public Accountant designations.

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