WEC Energy Group Earnings: Weather Presents Earnings Headwind for Remainder of Year

We are maintaining our $96 fair value estimate for WEC Energy Group WEC after the company reported first-quarter earnings per share of $1.61, down from $1.79 in the year-ago period. The company reaffirmed its long-term growth target of 6.5%-7%, in line with our 7% growth forecast. We expect dividend growth in line with earnings growth.

After trading in solid 4-star territory, the shares now trade in line with our fair value estimate, having increased 15% since their March low. Our narrow moat rating is unchanged.

Similar to peers that have reported earnings so far, the switch from a colder-than-normal winter in 2022 to a substantially warmer-than-normal winter this year resulted in a $0.12 per share negative year-over-year impact for WEC. Natural gas deliveries were down 10.5% and residential electric deliveries were down 5.8%. Near-term changes in electricity demand driven by weather volatility have no impact on our fair value estimate.

WEC Energy will have to make up the weather impact with cost savings during the rest of the year to achieve management’s $4.58-$4.62 EPS guidance. The company has a strong record of overcoming the impact of short-term electricity demand headwinds through cost savings, but this year could prove difficult, assuming normal summer weather.

After receiving regulatory clarity in the key Wisconsin regulatory jurisdictions late last year, the company has filed for rate reviews at the smaller Illinois gas utility subsidiaries. We expect similar outcomes to current regulatory treatment, with a possibility for a slight uptick in allowed returns on equity at Peoples Gas, which are currently 9.05% compared with Peoples Gas’ 9.8% request. Small rate filings in Michigan and Minnesota are ongoing. The company’s broader $20.1 billion capital investment plan, which supports our earnings growth estimate, remains on track.