Auvila Flash SRE (03/07/2018): SRE 2018E AEPS Guidance — We made a mistake in our assumption

SRE’s estimate for Oncor’s 2018E net income: $430MM
SRE’s interest in Oncor: 80%
SRE’s estimated 2018 annual share of net income: $344MM
Assume March 15, 2018 closing of Oncor acquisition
SRE’s estimated 2018 actual share of Oncor’s net income: $272.3MM (19/24ths)
Annual Interest Expense on $5,000MM financing at an average interest rate of 3.185%: $125.8MM
2018 Interest Expense on $5,000MM financing: $120.6MM (assuming 23/24ths of annual interest expense)
Annual Preferred Dividend on $1,725MM financing at the coupon rate of 6%: $103.5MM
2018 Preferred Dividend on $1,725MM financing: $99.2MM (assuming 23/24ths of annual interest expense)
Assumed share count for 2018: 275MM

($272.3MM – $120.6MM – $99.2MM) / 275MM = $0.19/share

We made the incorrect assumption that the reduction in corporate tax rate would accrue to the benefit of shareholders for 2018, and we incorrectly took SRE’s share of Oncor’s ANNUAL net income then subtracted interest expense and preferred dividend then multiplyed the result by 75% instead of starting with 75% of SRE’s share of Oncor’s annual net income.

Again, we apologize for the mistake.

Regardless, we feel strongly that SRE will outperform its 2018 guidance of $5.30-$5.80/share, and we’re not convinced that our 2018 estimate for SRE of $5.95 is necessarily incorrect. Therefore, we wait for quarterly results to start flowing before we make any adjustments to our estimates.

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SRE 4Q2017 Earnings (02/27/2018): Oncor ready to close by 1Q18 end; Future prospects bright

With Oncor close, we look for SRE to increase acquisition and investment in TX/Gulf-Coast: Committed to $7.5B-up-to-$8.4B utility capital spending thru 2022
2018E AEPS guiding to $5.30-$5.80/share; mid-point’s slightly higher than our prior estimate, but too low given 2017A Oncor results
SRE is expected to grow dividend 8%-9% to match
2019 GRC filed 10/2017 w/FD expected late-2018/early-2019
Within next 12-months we look for Cameron 4&5 to get FID and begin construction; ECA liquefaction also seems likely. Even Port Arthur seems likely, given MOU with KoGas
SRE looking at asset sales potential and looks to repatriate some $1.6B from 2018-2022 w/immaterial tax expense
IEnova’s has billions in potential opportunities; we support SDG&E’s move towards energy storage and more renewables, and SCG’s continuing emphasis on pipeline safety and reliability

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NRG 4Q2017 Earnings (03/01/2018): NRG decides to waste some $100MM in shareholder capital

NRG declared $1B share buyback program, which means it is wasting some $100MM in shareholder capital
Reported 4Q17 AEPS of $0.22 vs. our $0.12 and consensus of $0.31
Raising ST-Target/share to $39 from $35 on strength of rising economy, asset sales, and TCJA benefit
NRG has done a great job of realigning its strategy starting with GenOn and moving-on to its B/S management, and now its strategic overhaul
With new strategy, we’d also expect that NRG can reduce its hedging exposure
Closure of asset sales looks to close by yearend (100% of NYLD, renewables and South Central portfolio)
We look for NRG to expand its Retail business, especially in PJM where it has excess generation relative to retail load, which would also allow it to reduce hedging
We look for continued modest recovery in commodity fundamentals and macro-economic tail wind to pick-up

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PNM 4Q2017 Earnings (02/27/2018): Outlook improves but still conservative; 2H18 outperformance likely

2018E AEPS guidance $1.82-$1.92 is better than before due to benefit from Tax Cut and Jobs Act (TCJA)
PNM reported 4Q2017 of $0.24 vs. our $0.25 estimate and $0.19 consensus
PNM maintaining CAGR in AEPS to 2021 of 6%, which may be conservative, but dividend CAGR likely higher
We estimate CAGR in AEPS thru 2021 at some 8.4% from mid-point of 2018 guidance
Raising our 2018E AEPS due to new guidance and growth prospects. We see upside driven mostly by better economic performance. PNM’s future depends on regulatory matters, in our opinion
PNM 2018 RPS plan with FD by YE2018. Final IRP looks to be coal-free by 2031, which is most cost effective, and build renewable plants
TNMP GRC to be filed no later than May 2018. Total capex estimate is some $2.7MM (some $1,332MM of depreciation) for 2018-2022
TCJA is generally positive for PNM

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AES 4Q2017 Earnings (02/27/2018): 2018 AEPS guidance surprises but LT guidance conservative in our view

AES provided robust 2018E AEPS guidance of $1.15-$1.25 vs. our $1.13 estimate and $1.15 consensus
Robust guidance comes from continued growth projects, corporate tax changes, cost savings, asset sales, and debt reduction
AES looks to complete its troubled Alto Maipo hydro plant in Panama
AES means to focus on renewables and gas plants in US, so we look for sale of DPL&IPL to fund 10GW of utility-scale solar
We continue to feel AEPS guidance through 2021 is conservative: We feel it’s closer to 13%
Gas-to-power could be major LT growth source, particularly in Asia – reentry into China?
Issues surrounding AES, include, but aren’t limited to: 1) paying more than nominal dividend, 2) hasn’t disavowed share buybacks, and 3) growth trajectory isn’t at potential, in our view
Raised our NIV/share to $49 from $48 & ST-Target/share to $22 from $19.

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CNP 4Q2017 Earnings (02/22/2018): We feel CNP is conservative; ENBL to be sold in pieces; upside coming

CNP’s new almost $8B capital spending program forecasts 8.3% CAGR in rate base from 2017-to-2022, but earnings guidance for 2019-2020 is only 5%-7% CAGR
We believe CNP is being conservative due to potential commodity price volatility from CES
Electric T&D spending is expected to be some $4.8B, leading to 7.8% CAGR in rate base for 2017-2022, while Natural Gas Distribution spending is forecast to be about $3.2B over next 5 years, leading to some 9.2% CAGR in rate base
Bailey-to-Jones transmission looks like it’s a go for mid-2021 CDO
While we tweaked down our ST-Target to $37 from $39, our NIV/share rose to $63 from $58 and we increased our estimates
Appears that Enable Midstream Partners (ENBL) disposition would be through public market sales
We believe demographics continue to provide tailwind. Dividend yield likely to stay strong too.

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EIX 4Q2017 Earnings (02/22/2018): Focus on 2018 GRC; EIX doesn’t seem to be suffering from PCG ills

EIX is under pressure from investor fears natural disasters would lead to outsized liabilities from CA’s inverse condemnation
However, given EIX has not only declared a dividend but also raised it, it suggests to us that EIX is confident that potential liabilities from natural disasters would not be debilitating to shareholders
Therefore, we believe EIX is severely undervalued at present
EIX is withholding its 2018E AEPS guidance until it gets decision on its 2018 GRC: FD likely in 2Q2018
Strong execution, strategic evolution, focus on core strengths and high regulated investments make for attractive investment. Strategically, we like focus on utility projects with minimal distractions, but capital expenditures reduced by $1B.
LT investments should drive LT AEPS CAGR above 7%-9% forecast range, in our opinion
We lowered our ST-Target to $86/share from $100/share, while our NIV/share increased to $180 from $168.

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