Greater Cambridge Energy Project Will Improve Energy Reliability And Diversity

Key Takeaways

• Sale of Aquarion Water and increased infrastructure investment are aimed at reducing debt and enhancing margins through improved financial stability and revenue.
  
• Strategic investments in advanced projects and technology, like AMI and the Greater Cambridge Energy project, are set to boost efficiency and consistent earnings growth.
  
• Regulatory challenges and increased expenses may hinder revenue growth, while strategic investments and equity issuance risk impacting earnings and financial stability.

Catalysts

A public utility holding company, engages in the energy delivery business.

• The sale of Aquarion Water for $2.4 billion is expected to reduce debt significantly, enabling reinvestment in regulated utilities, potentially improving net margins and financial stability.
  
• Increased capital investment by 10% over the next five years, primarily in transmission infrastructure, sets the stage for enhanced revenue through addressing aging infrastructure and meeting increased load demands.
  
• The construction of innovative projects like the $1.8 billion Greater Cambridge Energy project will enhance energy supply reliability and diversity, likely leading to improved earnings from long-term efficiency gains.
  
• Implementation of advanced metering infrastructure (AMI) in Massachusetts and potential AMI expansion in Connecticut could boost operational efficiency, paving the way for improved profit margins.
  
• Strategic focus on stakeholder collaboration, regulatory relationships, and infrastructure investments in New England to meet clean energy goals is anticipated to drive consistent earnings growth in the 5% to 7% range.

Eversource Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Eversource Energy's revenue will grow by 5.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.8% today to 14.2% in 3 years time.
• Analysts expect earnings to reach $2.0 billion (and earnings per share of $5.28) by about March 2028, up from $811.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.5x on those 2028 earnings, down from 27.6x today. This future PE is lower than the current PE for the US Electric Utilities industry at 20.1x.
• Analysts expect the number of shares outstanding to grow by 4.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.45%, as per the Simply Wall St company report.

Eversource Energy Future Earnings Per Share Growth

Risks

• Challenges in acquiring regulatory approvals for rate increases in Connecticut and New Hampshire may lead to delays impacting projected revenue growth.
  
• Higher O&M, interest, and depreciation expenses along with rising property taxes could compress net margins despite revenue increases from rate adjustments.
  
• Equity dilution from the $1.2 billion issuance needed for strengthening the balance sheet may impede earnings per share growth in the short term.
  
• The successful divestiture of the Aquarion Water Company is contingent on regulatory consent; issues could affect debt reduction plans and consequently impact cash flows and financial position.
  
• The renewed focus on electric transmission and gas infrastructure investments demands significant capital allocation, potentially leading to higher borrowing costs and impacting net earnings if not balanced with adequate regulatory mechanisms for cost recovery.

Valuation

• The analysts have a consensus price target of $69.679 for Eversource Energy 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 $85.0, and the most bearish reporting a price target of just $47.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $14.0 billion, earnings will come to $2.0 billion, and it would be trading on a PE ratio of 17.5x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of $60.98, the analyst price target of $69.68 is 12.5% higher.
  
• 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.