CU: Incremental Rate Benefits Will Support Defensive Profile Amid Fair Valuation

Analysts have nudged their price target for Canadian Utilities modestly higher, reflecting a series of incremental target increases across the Street to roughly C$41 to C$44, as they cite resilient regulated utility performance despite a more volatile macro and rate backdrop.

Analyst Commentary

Bullish analysts see the steady drumbeat of price target increases, from the low C$40s to the mid C$40s, as validation that Canadian Utilities execution in its regulated businesses is tracking at or slightly ahead of expectations. They highlight that incremental upside is being recognized even as rates and macro conditions remain challenging, reinforcing the stock's role as a core defensive holding.

By contrast, more cautious voices characterize the rising targets as fine tuning rather than a thesis change, arguing that the valuation is approaching fair value relative to its regulated earnings profile and modest growth outlook. These analysts continue to stress that the shares are best suited for income oriented investors rather than those seeking outsized capital appreciation.

Bullish Takeaways

• Bullish analysts point to consistent upward revisions to price targets in the C$40 to C$44 range as evidence that earnings visibility and regulatory outcomes are tracking better than feared, supporting a more constructive valuation framework.
• Expectations that regulated utilities will meet or exceed consensus in the near term, helped by solid load trends and new rates, underpin views that the company can deliver steady, low risk cash flow growth.
• The stock is viewed as an attractive defensive hedge in a period of macro and credit spread volatility, with the regulated mix helping to protect downside while still offering modest upside as rate headwinds eventually ease.
• Incremental target hikes are interpreted as recognition that prior estimates were too conservative on both rate base growth and cost control, suggesting the potential for small but ongoing positive estimate revisions.

Bearish Takeaways

• Bearish analysts see the cluster of Sector Perform, Market Perform and Neutral style views as a sign that, despite target raises, the risk reward remains balanced and the shares trade close to intrinsic value.
• Some caution that growth prospects in the regulated portfolio are constrained relative to more dynamic power and energy infrastructure names, limiting multiple expansion even if execution remains solid.
• Less favorable generation trends and muted realized pricing in certain power markets are cited as factors that could cap upside from non regulated operations and keep overall earnings growth in the low single digits.
• Persistent market and credit spread volatility is seen as a potential overhang on yield sensitive utilities generally, with rising or sticky long term rates limiting how far valuation multiples can rerate from current levels.

What's in the News

• Announced the full redemption of its Cumulative Redeemable Second Preferred Shares Series FF on December 1, 2025 at $25.00 per share, funded with approximately $250 million of available cash. The final quarterly dividend of $0.28125 per share will be paid on the same date (Key Developments).
• Confirmed that, following payment of the December 1, 2025 dividend, there will be no accrued or unpaid dividends remaining on the Series FF preferred shares as of the redemption date (Key Developments).
• Reported no share repurchases between July 1, 2025 and September 8, 2025 under its previously announced buyback program, leaving the tranche effectively unused at CAD 0 million (Key Developments).
• Was removed from the S&P/TSX Preferred Share Index, reflecting index-level changes affecting the company's preferred share securities (Key Developments).

Valuation Changes

• The Fair Value Estimate remains unchanged at approximately CA$41.43, indicating no material shift in the intrinsic valuation assessment.
• The Discount Rate has edged down slightly from 6.12 percent to 6.11 percent, reflecting a marginally lower required return in the updated model.
• The Revenue Growth Forecast is effectively unchanged, holding near 7.63 percent, with revisions immaterial at the second decimal place.
• The Net Profit Margin Outlook remains stable at about 17.14 percent, with only a negligible model-level adjustment.
• The future P/E Multiple stays essentially flat at roughly 17.03 times, signaling no meaningful change in the valuation multiple applied to forward earnings.