Portland General Benefits From Oregon’s Clean Energy Push

We are reaffirming our $50 per share fair value estimate for Portland General Electric POR, or PGE, after the company reported earning $0.46 per share on an adjusted basis in the third quarter of 2023, down from $0.65 during the third quarter last year. We are reaffirming our narrow moat rating.

Our 2023 full-year earnings estimate remains in line with management’s updated $2.60-$2.65 EPS guidance range. We expect a jump in fourth-quarter earnings that will offset the negative variance in the second and third quarters caused by volatile power costs. We continue to forecast 7% annual average earnings growth during the next three years, at the high end of management’s 5%-7% target.

PGE’s stock has fallen 22% since May and now trades at a near-20% discount to our fair value estimate as of Oct. 27, making it one of the cheapest utilities in our coverage. We think its 4.8% dividend yield and growth potential make it an attractive buying opportunity.

Developments during the quarter support our growth outlook. In particular, we consider PGE’s recent rate case settlement a constructive outcome and a sign that many stakeholders support PGE’s plan to invest in reliability and clean energy. This is the third-consecutive rate case settlement and includes favorable adjustments that will smooth the financial impact from large short-term swings in electricity demand and prices. We expect regulators to approve the settlement and new rates to support earnings growth in 2024.

We think PGE will raise its long-term capital investment plan when it announces an update early next year. We continue to forecast $3.7 billion of capital investment in 2024-27, which is higher than management’s current plan. Our capital investment forecast could go up if PGE wins bids to construct renewable energy projects beyond 2025 as part of its long-term integrated resource plan. This could add $2-$3 per share to our fair value estimate, but it is early in the process and depends on regulatory support.