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Xcel Energy’s Upcoming 4Q16 Earnings: What Could Be Driving Them?

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Jan. 23 2017, Published 3:15 p.m. ET

Xcel Energy: What could earnings be?

According to analyst estimates, Xcel Energy (XEL) is expected to report earnings of $0.44 per share against $0.41 per share in 4Q15. Higher earnings are expected largely due to estimates of higher electricity consumption driven by favorable weather in 4Q16.

Xcel Energy has narrowed its 2016 earnings guidance from $2.12–$2.27 per share to $2.17–$2.22 per share in the last quarter. Management also released its 2017 earnings guidance of $2.25–$2.35 per share. It implies a target annual earnings growth of ~4.5%, which is roughly in line with the industry average and its projected long-term earnings growth.

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Earnings drivers

Xcel Energy’s almost entirely regulated operations result in comparatively stable earnings. Management is working on several fronts to steady its earnings growth in the future. Its capital spending plan of $15.0 billion for the next five years is expected to grow the company’s regulated rate base substantially.

The company is in the process of settling multiyear rate cases, which are expected to reduce the regulatory lag. A regulatory lag is the delay in the recovery of investments due to the time taken by regulators to approve rates. Multiyear rate cases offer regulatory certainty and effectively reduce regulatory lags.

Xcel is planning to file multiyear rate cases in its principal operating states. Addressing issues of regulatory lag in principal operating zones should improve its return on equity by 50 basis points by 2018.

The company is targeting 75.0% of its total revenues to come from these multiyear rate plans, which will significantly stabilize earnings. It’s currently achieving adjusted return on equity of 10.0%, which is in line with the industry average (XLU).

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