On Friday, BMO Capital Markets adjusted its price target for Fortis Inc. (NYSE:FTS:CN) (NYSE: FTS), raising it to C$62.00 from the previous C$61.00, while keeping a Market Perform rating on the stock. The firm's decision comes in response to Fortis' announcement of a five-year capital expenditure (capex) program and a 4% dividend hike, reflecting strong infrastructure growth within its diverse regulated utility operations.
The company's emphasis on organic growth has been noted as a significant value driver for its shareholders, with minimal need for external equity due to high participation in the Dividend Reinvestment Plan (DRIP). The revised price target also takes into account an improved compound annual growth rate (CAGR) for the rate base and a more favorable interest rate environment.
BMO Capital Markets acknowledges the robust infrastructure growth Fortis is experiencing across its regulated utility footprint. The firm's update follows Fortis' disclosure of its capex program, which has increased by 4%, and its dividend, which is set to grow by the same percentage.
The analyst from BMO Capital specifically mentioned the strengths of Fortis' strategy, stating, "Focus on organic growth is creating a lot of value for shareholders and external equity needs are contained given above-average DRIP participation." This approach by Fortis demonstrates a sustainable path to growth without heavily relying on external funding sources.
Maintaining the Market Perform rating indicates BMO Capital's view that Fortis' stock is expected to perform in line with the sector or the overall market. The slight increase in the price target to C$62.00 reflects a modestly improved outlook for the company's financial performance, driven by its strategic investments and favorable economic conditions.
In other recent news, Fortis Inc. has announced a robust five-year capital plan of $26 billion through 2029, marking an increase of $1 billion from previous forecasts. The plan aims to support a 6.5% average annual growth in rate base over the period, with the increased investment primarily driven by transmission projects at ITC and customer growth in Alberta. The company's rate base is projected to grow from $38.8 billion in 2024 to $53 billion by 2029.
In addition to this, Fortis has reported a 4.2% increase in its quarterly common share dividend, extending its dividend growth guidance of 4-6% per year through 2029. The company also reported strong second-quarter results for 2024, with an increase in adjusted earnings per share (EPS) year-over-year to $0.67.
However, BofA Securities has reinstated coverage on shares of Fortis with an Underperform rating, expressing concerns about the company's growth prospects and balance sheet strength. The firm noted a projected below-average EPS compound annual growth rate (CAGR) of 4.6% based on its current capital plan.
InvestingPro Insights
Fortis Inc. (NYSE: FTS) has demonstrated a commitment to shareholder returns, as evidenced by its 37-year streak of dividend increases. This track record of consistent dividend growth is a testament to the company's financial stability and its ability to generate steady cash flows. With a market capitalization of $22.44 billion and a dividend yield of 3.81%, Fortis presents itself as a potentially attractive option for income-focused investors.
InvestingPro data also highlights Fortis' valuation with a P/E ratio of 19.11, which suggests that the stock is trading at a premium relative to its near-term earnings growth. However, the company's stock has shown resilience, trading near its 52-week high and delivering a strong return of 17.48% over the last three months. This performance aligns with the BMO Capital Markets analyst’s positive view on Fortis' organic growth strategy and contained external equity needs.
For investors seeking a deeper analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/FTS, offering insights into Fortis’ financial health, including considerations of its debt burden and liquidity position. These tips can provide valuable context for investors weighing the potential risks and rewards associated with Fortis' stock.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.