Emera Earnings: Higher Interest Expense Likely to Drag on Earnings

We are maintaining our CAD 54 per share value estimate for Emera EMA after the company reported second-quarter operating earnings per share of CAD 0.60 compared with CAD 0.59 in the same year-ago period. Our narrow moat remains unchanged.

The company has invested CAD 1.4 billion year to date, putting it on track to invest CAD 2.8 billion for the full year, in line with our expectations. The company’s broader three-year CAD 8.4 billion capital investment plan supports our 6% annual earnings growth forecast through our five-year forecast.

Roughly three fourths of the company’s investment plan is focused on its high-growth Florida territory, where customer growth remains strong and above the national average. Renewable energy investments in the region are being supported by improving economics, including the benefits from the Inflation Reduction Act. We continue to view the Florida regulatory environment among the most constructive in the U.S.

The company filed a rate case at Peoples Gas, and we expect a constructive outcome with a 10.25% allowed return on equity, below the 11% requested but still among the highest of all regulated utilities, if granted. The company will need to work through regulatory filings to recover higher interest costs, which were not fully incorporated in rates, particularly in Florida’s recent ruling.

Emera benefited from investments and strong underlying demand at its utilities as well as favorable foreign exchange effects. Partially offsetting these benefits were weaker results as expected at its Emera Energy business, higher interest expense, and share dilution.