Evergy Earnings: Regulatory Outcomes This Year Will Drive Earnings Growth in 2024 and Beyond

We are reaffirming our $65 fair value estimate for Evergy EVRG after analyzing second-quarter results and recent regulatory developments in Kansas. We are also reaffirming our narrow moat rating.

Evergy announced earnings per share of $0.81 on an adjusted basis during the second quarter, down from $0.84 in the year-ago period. Weather was a year-over-year drag, as it was in the first quarter. Mild spring weather and a warmer-than-normal winter have been a $0.16 year-over-year drag. Assuming normal weather, first-half earnings would have been up significantly due to strong demand growth and cost savings.

Our full-year EPS estimate remains in line with management’s $3.55-$3.75 guidance. We continue to forecast 6% annual earnings growth through 2025 based on $11.6 billion of capital investment and modest demand growth during the next three years. This is at the low end of management’s 6%-8% annual earnings growth target.

Earnings growth in 2024 will depend on the outcome of Evergy’s request for a $218 million combined rate increase in its two Kansas jurisdictions. We assume regulators approve about half of its request late this year. A settlement could come as soon as September. We think regulators are unlikely to approve Evergy’s request to raise its allowed return on equity to 10.25% from 9.3% currently.

Evergy also filed an annual update to its 10-year integrated resource plan in Kansas and Missouri during the second quarter. The plan suggests the company will need 4,800 megawatts of new generation as it retires coal plants and adds renewable energy. If regulators approve the plan and allow Evergy to build some of the new generation, it could move the long-term growth rate to the higher end of management’s target beyond 2025.