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Increased Rates to Drive Xcel Energy’s Earnings in 4Q15

Vincent Kruger

Analysts Expect a 19% Rise in Xcel Energy's 4Q15 Earnings

Robust rise in net income expected

Xcel Energy (XEL) will release its fourth-quarter 2015 earnings on January 28, 2015. Wall Street analysts estimate that XEL’s net income may rise from $196 million in 4Q14 to $233 million in 4Q15. This amounts to a year-over-year rise of 19% in its earnings. These expected earnings translate to $0.43 per share in 4Q15 compared to $0.39 per share in 4Q14.

Xcel Energy has already narrowed its 2015 earnings guidance to $2.05–$2.15 per share from $2.00–$2.15 per share. It has provided earnings guidance of $2.12–$2.27 per share for 2016.

3Q15 highlights

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Xcel Energy reported earnings of $0.84 per share in 3Q15 against its earnings of $0.73 per share in 3Q14. The company’s improved earnings were primarily the result of higher margins from its electric business. These higher margins were driven by increased rates during the quarter.

Higher earnings were also triggered due to the impact of favorable weather conditions. Improved rates and warmer weather conditions in 4Q15 compared to 4Q14 are likely to be XEL’s growth drivers in 4Q15 also.

Management guidance

Xcel Energy’s management is aiming for an annual growth rate of 4%–6% with an expected dividend increase of 5%–7% in the next five years. It expects its rate base to increase by compounded annual growth of 4.5% in the next five years. Rate base is the value of the property on which a utility is allowed to earn a specific rate of return as per the rules set by regulators.

Increased capital spending has been a driving factor behind XEL’s earnings over the last few quarters. Minnesota and Texas are XEL’s most important territories, as they account for more than 40% of its total rate base. According to its capital spending plan, XEL is planning to invest $15 billion in these territories in the next five years.

Xcel Energy is a part of the Utilities Select Sector SPDR ETF (XLU) with a weight of 3.5% as of January 22, 2016. Duke Energy (DUK), Southern Company (SO), and NextEra Energy (NEE) are among the top holdings of XLU, with a combined weight of ~8.5%.

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