DTE Energy Earnings: IRP Approval Highlights Long-Term Growth Opportunities

We are reaffirming our $116 fair value estimate for DTE Energy DTE after reviewing the company’s 20-year integrated resource plan settlement that Michigan regulators recently approved and DTE’s second-quarter earnings. We also are reaffirming our narrow moat rating.

Although DTE’s IRP doesn’t have a direct impact on our fair value estimate, it does support our growth capital investment forecast and 6% annual long-term earnings growth rate. Our capital investment forecast is in line with management’s $23 billion five-year plan. The IRP also provides the foundation for a similar annual run rate of growth investment beyond 2027 as Michigan decarbonizes its power generation mix with as much as 6.5 gigawatts of new solar and 8.9 GW of new wind to replace coal during the next 20 years.

DTE reported $0.99 per share of earnings from continuing operations during the second quarter of 2023, up from $0.88 during the same quarter in 2022. The increase was primarily due to a year-over-year benefit from lower taxes and operating costs, partially offset by mild weather and continued growth investment.

Our 2023 outlook and long-term growth estimates remain in line with management’s $6.09-$6.40 EPS guidance for 2023 and 6%-8% annual growth target. DTE will have to continue realizing operating cost savings to offset the $0.36 per share earnings headwind from milder-than-normal weather during the first half of the year that lowered gas and electricity demand. Higher earnings from growth projects at DTE Vantage should also offset some of the weather-related impacts at DTE’s electric and gas distribution utilities.

We expect the board will continue raising the dividend 7% annually for at least the next few years even if 2023 earnings growth lags management’s target. We expect a constructive outcome in DTE’s $622 million electric rate increase request even if management isn’t able to reach a settlement by mid-October.