Avangrid: New Mexico Supreme Court Decision Another Hurdle to PNM Acquisition

We are maintaining our $39 per share fair value estimate for Avangrid AGR after the New Mexico Supreme Court denied a motion to dismiss the regulatory denial of Avangrid’s proposed acquisition of PNM Resources. Our narrow moat rating and Medium Uncertainty Rating remain unchanged.

Avangrid, PNM Resources, and the New Mexico Public Regulation Commission filed to dismiss the appeal of regulators’ denial of the proposed acquisition. The state court has scheduled oral arguments to begin in September. The company recently extended its PNM acquisition termination date by three months through the end of July. While we think the companies could agree to another extension, we think the ultimate outcome would be the same. We continue to exclude the acquisition from our estimates.

When Avangrid originally announced the PNM Resources acquisition in October 2020, we viewed the $8.3 billion price as rich based on Avangrid’s plan to issue equity to fund the acquisition. The company has since used that equity to fund growth projects. Avangrid would have to issue additional equity if the acquisition moves forward. If the deal were to be completed now at the previously agreed to price, which we don’t expect, it would be a slight positive to our fair value estimate.

We continue to remain below the company’s annual earnings growth guidance of 6% to 7% based on expectations for headwinds during regulatory proceedings at its Northeast regulated utilities and a slowdown in offshore wind development due to inflationary pressures that has materially hurt project economics. The acquisition of PNM Resources would have marginally increased our growth forecast for Avangrid but would still be below Avangrid’s guidance.