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Vivek Kumar
Wind turbines farm at sunset

Avangrid Inc, a U.S. based diversified energy and utility company that provides clean energy, has a potential to achieve an above-average earning per share growth from utility and renewables opportunities with outlook skewed more to the upside, according to Morgan Stanley.

The second-largest provider of clean, renewable wind power in the U.S. is on the right path and on multiple issues there is an improving line of sight, but it is still too early for the stock to re-rate.

“Overall rate base growth is slower than previously planned but still robust. We estimate 9% rate base CAGR in 2019-2022 (from the original 16% range), and modest ongoing regulatory lag going forward resulting in an 8.6% earned ROE,” Morgan Stanley’s analysts wrote.

Five analysts forecast the average price in 12 months at $47.00 with a high of $48.00 and a low of $46.00. The average price target represents a 9.02% increase from the last price of $43.11. From those five, two analysts rated ‘Buy’, three analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks

Morgan Stanley target price is $46 with a high of $58 under a bull scenario and $34 under the worst-case scenario. Walgreens Boots Alliance had its target price decreased by Mizuho from $53.00 to $48.00 and BoFA global research lowered price objective to $43 from $44.

The leading sustainable energy company will release its Q2 2020 financial results on July 21 after the market closes. In conjunction with the earnings release, it will conduct a webcast conference call with financial analysts on July 22, 2020 beginning at 10:00 AM ET.

In the long-run, there is still a solid rate base growth opportunity expectation may need to decline on the lower CAPEX outlook in the 2020-2023 period. We project Avangrid rate base will grow at a 7.5% CAGR in 2020-2023, Morgan Stanley noted.

“Avangrid has above-average EPS growth potential from utility and renewables opportunities, along with upside options not yet priced in. However, we think consistent execution and resolution of overhangs are needed before a re-rating can happen. We take a wait-and-see approach and initiate at EW with a $46 price target implying 7% upside and 11% total return considering the 4.2% yield,” noted David Arcaro, equity analyst at Morgan Stanley.

“Key risks/issues to consider: (A) risk of greater competition for renewables growth, (B) unfavourable regulatory outcomes, (C) longer-term exposure to merchant power market volatility after contracts roll-off, (D) long-term moves away from natural gas use by Northeast states, (E) major shareholder in Iberdrola, which owns 81.5% of the stock, (F) cost overruns for offshore wind projects,” he added.

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