UBS’ Julien Dumoulin-Smith believes that despite earlier concerns, Xcel Energy Inc XEL has proven successful at “ultimately arguing its case for not just added capex”, management has also successfully implemented a potential “rate stayout” in Minnesota.
Dumoulin-Smith upgraded the rating on the company from Sell to Neutral, with a price target of $40.
Upside Expected
Although the analyst continues to expect overall earned ROE at a low 9 percent, the company appears well positioned for incremental opportunities in Minnesota, following the resolution of the rate case.
“We emphasize regulatory risk appears to be declining vs. the historic trend of consistent annual Minnesota rate case filings. While other states remain in the mix including both Texas and New Mexico, we perceive few controversial issues to detail the story through the near-term,” Dumoulin-Smith stated.
Capex And EPS Guidance
According to the UBS report, “Despite the 12.5 billion ‘upside’ case characterized initially as largely aspirational, XEL has effectively locked almost $2 billion of the opportunity at this point.”
Half of the wind opportunity in Minnesota was part of the “upside,” while the recently settled Colorado wind plan is expected to add another $900 million, if it is approved by the commission.
In addition, the Colorado wind plant would include transmission upgrades worth another $100 million.
“Lastly, a further $300 million of smart grid upgrades in Minnesota slated for ~2018 appears likely,” the analyst went on to say.
Dumoulin-Smith expects management to maintain its EPS growth guidance of 4–6 percent, although it could trend toward the mid to high end of the guidance range.
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