OGE Energy Earnings: Weather Benefits and Core Growth Boost 2023 Results

We are reaffirming our $37 fair value estimate for OGE Energy after the company reported earning $1.20 per share in the third quarter of 2023, down from $1.23 in the third quarter last year after adjusting for earnings from the since-divested midstream business. We are reaffirming our no-moat rating.

Earnings at OGE’s rate-regulated utility, OG&E, were $1.22 per share in the third quarter, down 3% from last year primarily due to less-favorable weather. However, summer weather in OG&E’s service territory was still unusually warm with cooling degree days 19% above the long-term average.

The weather benefit relative to normal led management to raise the midpoint of its 2023 consolidated EPS guidance range to $2.11 from $2.04. We plan to raise our 2023 EPS estimate a similar amount to reflect the weather benefit, but this does not impact our long-term outlook or fair value estimate. A return to normal summer weather will be a drag on 2024 earnings, offsetting some of the positive growth drivers. The board raised the dividend 1% to $1.67 per share annualized last quarter, in line with our expectation. We forecast three more years of similar dividend growth as OGE eases into management’s 65%-70% target payout ratio.

On a weather-normalized basis, we continue to expect 6% average annual earnings growth during the next four years, in line with management’s 5%-7% target. This incorporates $1 billion of capital investment annually and constructive regulatory outcomes, particularly in next year’s Oklahoma rate review. OG&E’s electricity demand growth remains stronger than most utilities’. Weather-normalized retail usage is up 3% year to date with key support from data center growth. Continued usage growth should boost earnings growth, support capital investment, and reduce regulatory risk. OGE is one of the few utilities that shouldn’t need to issue equity to fund its growth plan given proceeds from the recent Energy Transfer unit sales.