On Friday, BofA Securities resumed coverage on Fortis Inc. (NYSE:FTS:CN) (NYSE: FTS), issuing an Underperform rating with a price target of Cdn$60.00. The firm based its assessment on the expectation of below-average earnings growth and potential limitations due to the company's financial position.
Fortis, a Canadian utility holding company operating 10 regulated utilities across North America, is projected to have a 4.6% earnings per share (EPS) compound annual growth rate (CAGR) based on its base capital plan. BofA Securities anticipates that any earnings upside from additional spending may be restricted by the need for equity to support the company's strained balance sheet.
The price objective set by BofA Securities suggests a slight downside of -1% and a total return potential of 3%. This valuation reflects the analyst's view that the current portfolio and balance sheet do not justify a 10%+ premium compared to the group.
ITC Holdings Corp., a significant part of Fortis's portfolio, is the largest standalone independent electricity transmission company in the United States. It is considered a solid asset with potentially attractive investment opportunities over the next decade. Despite this, ITC accounts for only a third of the total regulated EPS split projected for 2026, influencing the analyst's rating.
Fortis's stock performance and future prospects are now under closer scrutiny following the reinstated coverage and the set price target. Investors and market watchers will be paying attention to how the company's financial strategies and investment opportunities unfold in the coming years.
In other recent news, Fortis Inc. reported strong second-quarter results for 2024, marking an increase in adjusted earnings per share (EPS) year-over-year to $0.67. The company also confirmed its commitment to a $4.8 billion annual capital plan, with an investment of $2.3 billion in capital projects to bolster system reliability and support clean energy initiatives. In the same vein, Fortis' rate base is projected to rise to over $49 billion by 2028, while maintaining its 4% to 6% annual dividend growth guidance through the same year.
However, BofA Securities reinstated coverage on shares of Fortis with an Underperform rating, citing concerns about the company's growth prospects and balance sheet strength. The analyst noted a projected below-average earnings per share (EPS) compound annual growth rate (CAGR) of 4.6% based on its current capital plan.
On the regulatory front, the Iowa Supreme Court's decision allows ITC Midwest, the company's largest asset, to proceed with the Tranche 1 projects. Analysts predict a significant increase in Fortis' rate base by 2028, as the company is executing a growth strategy that includes expanding into clean energy and electrification. Lastly, Fortis is advocating for regulatory changes in Arizona to reduce lag, as part of its ongoing efforts to explore further growth opportunities.
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