Six months ago, I recommended then-lagging electric utility and renewable energy producer Avangrid Inc. (AGR) in anticipation of two major favorable developments, recalls Roger Conrad, editor of Conrad's Utility Investor.
The first was US government approval of the then-stalled Vineyard offshore wind facility; the second was a successful close of the company’s proposed merger with PNM Resources (PNM).
Since then, the Biden Administration has granted final regulatory approval to start construction on the 800-megawatt capacity facility. More important, it’s provided a roadmap for companies like Avangrid to move ahead quickly with other projects in coming years.
As for the PNM acquisition, the company has secured all needed regulatory approvals except in New Mexico. Officials are now reviewing a settlement supported by the state’s governor and attorney general. And approval appears to be on track for the second half of 2021.
The result has been solid gains since for shares of Avangrid, which is the US arm of its 81.63 percent owner Iberdrola SA (Spain: IBE) (IBDRY). And the best should be yet to come, as added scale in both the regulated US utility business and offshore wind generation drive further efficiencies and growth.
Access to low cost capital is essential. And aggressive expansion plans the next few years will likely limit dividend increases, at least until the PNM merger closes. But to date management has had no problems issuing new equity or debt at preferential rates, raising roughly $4 billion in a private placement to Iberdrola and a subsidiary of the Qatar Investment Authority in May.
The shares currently appear to be fully priced at a valuation of a little less than 25 times next 12 months expected earnings. But this year’s good news does earn Avangrid a boost in my highest recommended entry point to 55 for conservative growth and income investors.
The stock is also a strong candidate to benefit from a revival of market interest in renewable energy stocks, many of which have sold off since January.
