New England Electrification And Renewables Will Drive Grid Modernization

Key Takeaways

• Enhanced regulatory outcomes and rapid infrastructure expansion position Eversource for stronger revenue and earnings growth beyond current market expectations.
  
• Advanced grid technologies and legislative support enable margin expansion, reduced risk, and sustainable long-term dividend increases relative to peers.
  
• Rising adoption of distributed energy and regulatory uncertainty threaten Eversource's traditional revenue streams, while heavy capital spending and higher borrowing costs could pressure future earnings.

Catalysts

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

• Analyst consensus expects an 8% rate base growth, but with Eversource recently increasing its 5-year infrastructure plan by 10% and management citing unprecedented load growth-over 2% in early 2025-there is substantial underappreciated upside to both regulated revenue and long-term EPS growth, given the rapidly accelerating electrification and demand for grid capacity.
  
• Long-term rate base expansion is also being underplayed: analyst consensus highlights Massachusetts investments, but Eversource's constructive regulatory wins in New Hampshire and a clarified court standard for capital recovery in Connecticut should unlock additional above-plan investments with more timely cost recovery, driving higher-than-expected earnings and cash flow.
  
• The integration and rapid rollout of advanced metering, energy storage, and next-generation grid management technologies go beyond efficiency, enabling Eversource to capitalize on AI-driven energy optimization and distributed resources, which could structurally lift net margins and allow for higher return on equity than currently modeled.
  
• The strong multi-year legislative and regulatory momentum across three states-including Connecticut's SB4, new securitization tools, and performance-based rate making-sets the stage for lower regulatory risk, improved rate stability, and expanded balance sheet capacity, all of which support upward revisions to future dividend growth and long-term earnings sustainability.
  
• With New England's above-average income and population growth, continued leadership in renewables integration, and first-mover projects like the Cambridge Underground substation, Eversource is uniquely positioned to benefit from the region's electrification, outpacing industry peers in volumetric sales and rate base expansion, driving durable and compounding top-line and EPS growth over the next decade.

Eversource Energy Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Eversource Energy compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Eversource Energy's revenue will grow by 9.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 6.6% today to 13.0% in 3 years time.
• The bullish analysts expect earnings to reach $2.2 billion (and earnings per share of $5.86) by about August 2028, up from $858.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 20.2x on those 2028 earnings, down from 28.5x today. This future PE is lower than the current PE for the US Electric Utilities industry at 20.8x.
• Analysts expect the number of shares outstanding to grow by 3.84% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.15%, as per the Simply Wall St company report.

Eversource Energy Future Earnings Per Share Growth

Risks

• The acceleration of distributed energy resources such as rooftop solar and home batteries could erode traditional utility demand, directly threatening Eversource's long-term revenues as more customers bypass centralized electricity supply.
  
• The company's large and rising capital investments ($24.2 billion over five years, with additional potential spending) combined with structurally higher interest rates raise the risk of increasing debt servicing costs and potential balance sheet strain, which would pressure net margins and future earnings.
  
• Regulatory and legal uncertainties, especially in Connecticut-including delays in storm cost securitization and a recent credit rating downgrade for Connecticut Light & Power-pose risks to timely cost recovery and investment returns, potentially causing lower or more volatile earnings growth.
  
• Growing customer focus on decarbonization and the adoption of new technologies like battery storage and advanced metering could lead commercial and residential customers to procure energy elsewhere or reduce grid reliance, curbing Eversource's revenue opportunities and adding uncertainty to its earnings.
  
• Potential adverse regulatory reforms, such as changes in rate design or lower allowed returns on equity, particularly in light of Connecticut's recent reforms and political scrutiny, may compress regulated returns and dampen long-term earnings potential.

Valuation

• The assumed bullish price target for Eversource Energy is $87.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Eversource Energy's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $87.0, and the most bearish reporting a price target of just $47.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $17.0 billion, earnings will come to $2.2 billion, and it would be trading on a PE ratio of 20.2x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of $65.93, the bullish analyst price target of $87.0 is 24.2% 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.