Evergy Earnings: Keep Close Eye on Regulatory Developments in Kansas

We are reaffirming our $65 per share fair value estimate for Evergy EVRG after the company announced earning $0.59 per share on an adjusted basis during the first quarter of 2023, up from $0.56 in the same period last year. We are reaffirming our narrow moat and stable moat trend ratings.

Weather continues to create variability in Evergy’s year-over-year earnings comparisons. Lower electricity demand related to warmer-than-normal weather reduced earnings by $0.07 in the quarter relative to normal weather estimates. The company was able to make up that headwind with an increase in weather-normalized demand and cost savings. Earnings from core demand growth would have been even higher if not for a drop in demand from two refineries in Evergy’s service territory.

Our full-year earnings estimate remains in line with management’s $3.55-$3.75 EPS guidance range for 2023. 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.

Kansas is the key area of regulatory uncertainty this year. Earnings growth in 2024 will depend on the outcome of its recently filed 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. We think regulators are unlikely to approve Evergy’s request to raise its allowed return on equity to 10.25% from 9.3% currently.

The second key regulatory proceeding in Kansas is an update to Evergy’s long-term integrated resource plan. Evergy also plans to file an updated integrated resource plan in Missouri. If regulators support Evergy’s integrated resource plan, it could create more growth investment opportunities, but this is too uncertain to incorporate in our forecast now.