PPL's Core Utilities Perform Well
Our fair value estimate and narrow economic moat rating remain intact.
We are reaffirming our $35 per share fair value estimate and narrow economic moat after PPL (PPL) reported third-quarter operating earnings per share of $0.59, compared with $0.56 in the year-ago period. Management increased its to 2018 guidance to $2.30-$2.40 per share, up from $2.25-$2.40 per share. We expect to increase our earnings estimate, but near-term changes do not have a material impact on our long-term outlook. Management also reaffirmed its 5%-6% earnings growth and 4% dividend growth targets through 2020, consistent with our forecasts.
While investors appear to be warming to the regulatory and political risk of PPL's U.K. operations, with PPL shares up 20% since its early summer low, we continue to believe the market is pricing in an unlikely scenario for the unit. We continue to forecast a constructive regulatory environment that will support investment and modest growth, with lower rates of return than allowed under the current RIIO-1 period. Management has noted that it is open for strategic options for the unit, but we don't expect any decision until further clarification is received on the U.K. regulatory environment and Brexit discussions.
PPL filed for a rate review in Kentucky at its KU and LG&E subsidiaries, requesting $172 million in rate increases at a return on equity of 10.42%. We forecast a return on equity of 9.7%, consistent with its prior rate case outcome. The rate increase is based on a forward April 2020 test year, with new rates to be effective in May 2019.
For the quarter, earnings benefited from favorable summer weather, aiding results $0.03 per share in the quarter. PPL's core operations remain on track to meet our 5.5% rate base growth expectations.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
Andrew Bischof does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.