Last Update 09 Dec 25

H: Updated Earnings Outlook And Stable Loads Will Support Defensive Exposure

Analysts have nudged their average price target for Hydro One modestly higher, with recent increases to approximately C$52 to C$57. This reflects confidence in stable regulated earnings and new rate structures amid a more volatile broader power market.

Analyst Commentary

Recent research updates highlight a generally constructive stance on Hydro One, with multiple firms nudging price targets higher in response to the company’s defensive earnings profile and supportive regulatory backdrop. The cluster of target raises into the low to mid C$50 range underscores a view that the stock offers steady, if not spectacular, upside as part of a broader utilities allocation.

At the same time, most ratings remain anchored in middle-of-the-road categories such as Sector Perform or Neutral. This signals that while downside risk appears contained, expectations for outsized alpha are tempered by valuation and growth considerations.

Bullish Takeaways

Bullish analysts see the incremental target increases, up to around C$57, as justified by the predictability of regulated cash flows and clearer visibility on new rate structures.
Stable load trends and constructive rate decisions are viewed as supporting modest earnings growth, which helps underpin a premium to historical valuation averages without stretching multiples excessively.
In the context of choppier results expected for unregulated power producers, Hydro One’s regulated profile is framed as an attractive defensive anchor within a diversified power and utilities portfolio.
Some bullish analysts argue that recent market and credit spread volatility enhances the relative appeal of Hydro One’s balance sheet strength and lower earnings variability, supporting incremental upside to current targets.

Bearish Takeaways

Bearish analysts caution that, despite higher price targets, maintained Neutral or Market Perform ratings signal limited rerating potential from here, given Hydro One already trades near the upper end of its typical valuation range.
Compared with faster growing power names, Hydro One is seen as offering less earnings and dividend growth leverage, which could cap long term total return potential even if near term execution remains solid.
The modest size of recent target increases suggests that upside is driven more by fine tuning of assumptions than by a step change in growth outlook. This reinforces the view of the stock as a stable bond proxy rather than a high conviction growth idea.
Bearish analysts also point to a more volatile macro and rate environment. They warn that any sustained improvement in risk appetite or credit conditions could shift investor preference back toward higher growth power names at the expense of slower growing regulated utilities like Hydro One.

What's in the News

Professional employees represented by the Society of United Professionals have filed for conciliation with the Ontario Labour Relations Board after five months of unsuccessful bargaining, leaving more than 2,100 Hydro One staff without a contract since October 1, 2025 (Key Developments).
The union says Hydro One has not tabled a serious offer that meets member needs, increasing the risk of further labor escalation that could affect operations and labor costs if talks remain stalled (Key Developments).
Hydro One has reaffirmed guidance for normalized earnings per share growth of 6% to 8% annually through 2027, based on a 2022 EPS of $1.61, which the company indicates reflects its confidence in its regulated growth outlook (Key Developments).
The medium term EPS growth guidance supports an investment thesis of stable, predictable cash flows and may help support current valuation multiples despite macroeconomic and interest rate volatility (Key Developments).

Valuation Changes

Fair Value Estimate has remained unchanged at approximately CA$51.57 per share, indicating no material shift in the model’s intrinsic value assessment.
Discount Rate has edged down slightly from about 6.12% to 6.118%, reflecting a negligible reduction in the assumed cost of capital.
Revenue Growth has ticked down marginally from roughly 3.23% to 3.23%, a change that is mathematically present but not economically meaningful.
Net Profit Margin has increased fractionally from about 15.85% to 15.85%, suggesting a virtually unchanged long term profitability outlook.
Future P/E has slipped very slightly from approximately 23.91x to 23.91x, leaving the forward valuation multiple essentially flat versus prior assumptions.

Government policy and grid modernization initiatives position Hydro One for sustained, regulated earnings growth through expanded capital investment and increased rate base.
Supportive regulatory environment provides cash flow stability, lowers earnings volatility, and underpins long-term dividend growth.
Rising capital needs, regulatory uncertainty, competitive pressures, cost inflation, and geographic concentration threaten Hydro One's profitability, growth potential, and shareholder returns.

Catalysts

About Hydro One

Through its subsidiaries, operates as an electricity transmission and distribution company in Ontario.What are the underlying business or industry changes driving this perspective?

Surging electricity demand in Ontario, projected to grow 70% by 2050, along with government policy accelerating transmission and distribution infrastructure expansion, position Hydro One for sustained, rate base-driven revenue and earnings growth as electrification of transportation and industry advances.
The provincial Integrated Energy Plan explicitly prioritizes new transmission and grid modernization projects for Hydro One, enhancing multi-year capital investment visibility and supporting higher regulated asset base, which should boost future allowed revenues and long-term EPS growth.
Grid modernization and digital infrastructure investments (including Advanced Metering Infrastructure) enabled by policy support will improve network reliability and efficiency, potentially expanding Hydro One's rate base while lowering operating costs and supporting net margin expansion.
Distribution segment growth, previously overshadowed by transmission, now benefits from explicit recognition in government energy planning, opening incremental investment opportunities in local grid modernization and innovation that can drive additional regulated earnings growth and long-term cash flow.
Stable and constructive Ontario regulatory environment, combined with supportive mechanisms for major storm recovery and forward-looking rate applications, lowers earnings volatility and enhances Hydro One's ability to fund long-term dividend growth from predictable, inflation-protected cash flows.

Hydro One Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Hydro One's revenue will grow by 2.8% annually over the next 3 years.
Analysts assume that profit margins will increase from 14.3% today to 15.3% in 3 years time.
Analysts expect earnings to reach CA$1.5 billion (and earnings per share of CA$2.43) by about September 2028, up from CA$1.3 billion today.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.3x on those 2028 earnings, up from 23.8x today. This future PE is greater than the current PE for the CA Electric Utilities industry at 21.2x.
Analysts expect the number of shares outstanding to grow by 0.06% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 5.97%, as per the Simply Wall St company report.

Hydro One Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Rising capital expenditures for storm restoration, infrastructure renewal, and grid modernization (with $3.1 billion invested in 2024 and further acceleration anticipated) will significantly increase Hydro One's funding requirements, leading to higher debt levels and upcoming equity issuances; this may put downward pressure on earnings per share growth and dilute shareholder returns.
Long-term regulatory uncertainty around the approval and timing of major rate applications (such as the upcoming multi-year joint rate application), as well as unpredictable allowed returns on equity, could constrain Hydro One's ability to earn favorable returns on investment and negatively impact net margins and future revenue growth.
Intensifying competition from potential province-initiated competitive procurement for transmission projects, and possible LDC consolidation, may introduce price pressure and limit Hydro One's ability to maintain historic win rates or lucrative project economics, threatening long-term earnings and growth prospects.
Cost inflation for materials, tariffs, supply chain challenges, and shifting supplier bases (including the need to secure Canadian sourcing and diversify away from US suppliers) could erode operating margins and increase capital project costs over time, impacting net profitability.
Significant reliance on large, regulated projects and geography-specific demand in Ontario-with limited diversification outside the province and slow progress on external/adjacent growth opportunities-makes Hydro One vulnerable to province-specific risk, shifts in regional electricity demand, and regulatory/political headwinds, potentially constraining revenue and long-term earnings potential.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of CA$49.679 for Hydro One based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$59.0, and the most bearish reporting a price target of just CA$40.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$9.5 billion, earnings will come to CA$1.5 billion, and it would be trading on a PE ratio of 24.3x, assuming you use a discount rate of 6.0%.
Given the current share price of CA$49.84, the analyst price target of CA$49.68 is 0.3% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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