Evergy Gets Big Lift From Favorable Weather; Kansas Regulation Key to Watch in 2023

We are reaffirming our $64 per share fair value estimate for Evergy EVRG after the company announced earning $3.71 per share on an adjusted basis in 2022, up from $3.46 in 2021. We are reaffirming our narrow moat and stable moat trend ratings.

Results in 2022 topped our estimate and management’s $3.53-$3.63 EPS guidance range, however, the bulk of the outperformance was due to favorable weather that we don’t expect to recur. We are reaffirming our outlook for 2023 and beyond.

Management attributed $0.21 per share of full-year earnings growth in 2022 to more favorable weather than in 2021. A return to normal weather in 2023 is a key reason we expect mostly flat earnings in 2023. Management’s $3.55-$3.75 EPS guidance range for 2023 is in line with our estimate.

We continue to forecast 6% annual earnings growth through 2025 based on $11.6 billion of capital investment during the next three years. This is at the low end of management’s 6%-8% annual earnings growth target.

Hitting management’s growth target will require constructive outcomes in two key regulatory proceedings planned this year in Kansas. The first is a request for higher base rates, Evergy’s first rate case in the state since the mid-2018 merger. Growth investments in Kansas during the last five years have created a drag on Evergy’s returns. We think it will be difficult for Evergy to eliminate that drag with one rate adjustment in 2024 given the historically challenging regulatory environment in Kansas. We expect it could take two or three rate cycles stretching five or more years to eliminate regulatory lag.

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 IRP in Missouri. If regulators support Evergy’s IRP, it could create more growth investment opportunities, but this is too uncertain to incorporate in our forecast now.