WEC Energy Earnings: Strong Growth and Constructive Regulation at a Discount to Valuation

We are reaffirming our $96 per share fair value estimate for WEC Energy WEC after the company reported third-quarter earnings of $1.00 per share, up from the $0.96 per share reported in the same year-ago period. Our narrow moat rating is unchanged.

The company reaffirmed its 2023 earnings guidance range of $4.58 to $4.62 per share, with an expectation to be at the upper half of the range. Management reaffirmed their long-term annual earnings growth target of 6.5% to 7% and extended it to 2028. Our 7% growth forecast through 2027 remains unchanged. We expect dividend growth in line with earnings growth, including a 7.2% increase this year representing the company’s 20th consecutive year of increasing the dividend.

WEC Energy’s stock has fallen 17% since April and now trades at a near-15% discount to our fair value estimate as of Oct. 31, making it one of the more attractive utilities in our coverage. Positive attributes include a best-in-class management team and above-average growth opportunities supported by constructive regulation. We think its 3.8% dividend yield and growth potential make it an attractive buying opportunity.

The company increased and updated its capital investment program, with plans to spend $23.4 billion, a $3.3 billion increase from its prior program. The company will increase investments in renewable energy, natural gas generation, and transmission. The company lowered its energy infrastructure investment and reallocated the capital to rate-regulated investment opportunities, which we view positively.

To fund the plan, the company plans to issue up to $2.2 billion in equity. We think management might look to monetize one of its natural gas distribution utilities to offset the potential equity need.

Earnings in the quarter benefited from continued investment and continued operating expense improvement. Partially offsetting these benefits were higher interest expense among other smaller items.