WEC Financial Analysis

Analysis Date: 2/5/2025

Business Model

WEC Energy Group operates as a premier energy company with operations in Wisconsin, Illinois, Michigan, and Minnesota. The company's revenue is generated primarily from regulated utilities including: Electric Generation and Distribution: Generating and distributing electricity to retail customers. Natural Gas Distribution: Distributing natural gas to retail customers. Electric Transmission: Operating and maintaining electric transmission infrastructure through its ownership in American Transmission Company (ATC). Non-Utility Energy Infrastructure: Developing and owning renewable generation facilities through WEC Infrastructure (WECI).

Revenue Sources

• Sale of electricity to residential, commercial, and industrial customers.
• Sale of natural gas to residential, commercial, and industrial customers.
• Earnings from equity investment in American Transmission Company (ATC).
• Revenue from non-regulated renewable energy projects through WEC Infrastructure.

Income Statement Analysis

• Operating Revenues increased by 2.99% compared to Q4 2023, indicating positive revenue growth.
• Cost of Sales and Other Operation and Maintenance expenses decreased slightly, contributing to improved profitability.
• Depreciation and Amortization and Property and Revenue Taxes increased, reflecting ongoing investments and potentially higher tax liabilities.
• Operating Income saw a significant increase of 73.07% due to revenue growth and controlled operating expenses (excluding Impairment in previous year).
• Equity in Earnings of Transmission Affiliates increased significantly by 52.42%, indicating stronger performance from ATC.
• Interest Expense increased by 9.51%, likely due to increased debt for capital investments, however this is offset by Gain on Debt Extinguishments.
• Net Income increased substantially by 107.36%, driven by higher operating income and equity earnings, and the absence of the prior year's Impairment related to Illinois Commerce Commission disallowances.

Balance Sheet Analysis

• Cash and Cash Equivalents decreased significantly by 77.16%, potentially due to investments and debt management.
• Accounts Receivable and Unbilled Revenues, Net increased by 11.05%, suggesting higher sales or changes in billing cycles.
• Property, Plant, and Equipment, Net increased by 9.7%, reflecting significant capital expenditures in infrastructure and generation assets.
• Equity Investment in Transmission Affiliates increased by 5.13%, indicating growth in ATC's asset base and potentially higher earnings.
• Short-Term Debt decreased by 44.76%, while Current Portion of Long-Term Debt increased by 36.77%, indicating a shift in debt structure, possibly refinancing short-term debt into long-term debt.
• Long-Term Debt increased by 11.79%, consistent with funding capital expenditure and investments.
• Asset Retirement Obligations increased substantially by 54.99%, which could be due to updated estimates or new asset retirement obligations related to plant retirements or environmental initiatives.
• Common Shareholders' Equity increased by 5.72%, driven by retained earnings and potentially new equity issuance.

Capital Allocation

WEC Energy Group demonstrates a balanced capital allocation strategy: Dividends: The company has a strong commitment to dividends, increasing the dividend by 6.9% for 2025, marking the 22nd consecutive year of dividend increases. The dividend payout ratio is targeted at 65% to 70% of earnings, reflecting a commitment to shareholder returns (Investor Update: January 2025.pdf, page 7, WEC Energy Group 4Q 2024 Earnings Call Transcript.pdf). Share Repurchases: While share repurchases are minimal in 2024 (Purchase of common stock of $3.2 million), the company does engage in share issuance through ATM programs and employee benefit plans (Issuance of common stock, net of $163.4 million in 2024, WEC Energy Group posts 2024 results.pdf). Business Reinvestment: A significant portion of capital is allocated to business reinvestment, as evidenced by the $28 billion 5-year capital plan (WEC Energy Group 4Q 2024 Earnings Call Transcript.pdf). This includes investments in regulated renewables ($9.1 billion planned for 2025-2029), natural gas generation, LNG capacity, electric distribution, and transmission infrastructure (Investor Update: January 2025.pdf, pages 13, 18, 19, 20, 21). The capital plan is driven by economic growth in the region and the need to modernize infrastructure and transition to cleaner energy sources (WEC Energy Group 4Q 2024 Earnings Call Transcript.pdf, Investor Update: January 2025.pdf).

Management Commentary

Delivered another year of solid results on virtually every meaningful measure – from customer satisfaction, to financial performance to steady execution of our capital plan.

Reaffirming our annual guidance of $5.17 to $5.27 per share for 2025.

Wisconsin unemployment rate stands at 3%, continuing a long running trend below the national average.

Microsoft took a short pause on construction to evaluate the technical design of the second area. That pause was lifted and work has resumed. Microsoft is still reviewing designs for the 3rd area.

Estimated weather headwind was $0.25 per share when compared to normal conditions [in 2024]. We were able to offset this by implementing a variety of initiatives such as O and M and fuel management as well as tax and financing activities.

Currently have no planned or active rate cases.

Overall Sentiment: Positive and confident. Management expresses satisfaction with 2024 performance and reiterates strong guidance for 2025. They highlight robust economic growth in their service territory, particularly driven by data center developments, and emphasize their ability to execute on their large capital plan and deliver consistent earnings growth and dividend increases. While acknowledging a weather headwind, they underscore their operational efficiency in mitigating its impact. The sentiment is optimistic about future growth and shareholder value.

Recommendation

Rating: Buy

Reason for Rating: Based on strong financial performance, robust capital investment plan, consistent earnings and dividend growth, and positive economic outlook in the service territory, a Buy recommendation is warranted.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 2/5/2025, 3:51:08 AM