DTE Energy: Distribution Investment Plan a Key Piece of Growth Puzzle

We are reaffirming our $116 fair value estimate for DTE Energy DTE after the company presented to Michigan regulators a five-year, $9 billion electric distribution investment plan. We are reaffirming our narrow moat rating.

We consider electric distribution a key growth area as many states including Michigan use carbon-free electricity to replace fossil-fuel energy. Maintaining reliability during the energy transition is paramount to receive support for growth investments from regulators and customers. If regulators approve DTE’s plan, it should help derisk future regulatory rate proceedings and earnings growth.

DTE’s stock had been trading near our fair value estimate for most of the year before falling 14% since late July. It now has a rare 4-star rating and nearly a 4% yield.

Although we expect regulators to push back on some of DTE’s proposed distribution investments, we continue to forecast DTE will invest $23 billion companywide during the next five years. This supports our 6% annual earnings growth rate outlook. We think this level of investment and earnings growth could extend beyond five years based on Michigan’s clean energy and reliability goals.

DTE’s electric distribution filing, which we expect regulators to review for several months, comes shortly after DTE settled its 20-year integrated resource plan to add as much as 6.5 gigawatts of new solar generation and 8.9 GW of new wind generation to replace coal during the next 20 years. The distribution plan filing also comes as regulators are reviewing DTE’s $622 million rate increase request. A settlement could come as soon as mid-October.

We continue to forecast 2023 EPS in line with management’s $6.09-$6.40 guidance. Investors should watch if DTE is able to offset the $0.36 per share weather-related first-half earnings headwind with operating cost savings and higher earnings at DTE Vantage.