Grid Modernization Will Transform Energy Trends Beyond 2027

Key Takeaways

• Large-scale data center growth and infrastructure investments position Fortis for sustained revenues, stable earnings, and long-term asset base expansion.
  
• Policy-driven decarbonization and strong regulatory support enable faster cost recovery and margin improvement, boosting Fortis's earnings visibility and resilience.
  
• Regulatory challenges, rising capital costs, policy uncertainty, and disruptive energy trends could constrain Fortis's long-term revenue, earnings growth, and credit profile.

Catalysts

Operates as an electric and gas utility company in Canada, the United States, and the Caribbean countries.

• The rapid growth in electricity demand driven by large-scale data center projects in Arizona, along with continued load growth across North America, supports a multi-year expansion of Fortis's rate base, indicating higher future revenues and earnings stability as these long-term contracts ramp up from 2027 onward.
  
• Substantial planned capital investments in grid modernization, renewable energy integration, and battery storage (e.g., $2.9B invested in H1 2025 and upcoming projects at ITC and FortisBC) position the company to benefit from policy-driven infrastructure upgrades and decarbonization mandates, supporting above-average asset base growth and improved earnings visibility.
  
• Increasing government and regulatory support for decarbonization efforts-including successful regulatory filings for formula rate plans and higher allowed ROEs-are expected to accelerate cost recovery, reduce regulatory lag, and improve net margins going forward.
  
• Fortis's proactive pursuit of new transmission/gas infrastructure, such as the conversion of coal facilities to gas and participation in bidding for major North American grid projects, enables it to capitalize on the shift toward electrification and population-driven urbanization, driving incremental revenue and long-term expansion opportunities.
  
• The company's long-term capital plan and track record of consistent dividend growth (4–6% annual target) signal strong balance sheet management and earning stability, suggesting the market may be underestimating the resilience of future cash flows and the inflation-protected nature of Fortis's regulated returns.

Fortis Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fortis's revenue will grow by 5.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.3% today to 14.9% in 3 years time.
• Analysts expect earnings to reach CA$2.1 billion (and earnings per share of CA$3.92) by about September 2028, up from CA$1.7 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 20.5x on those 2028 earnings, up from 20.1x today. This future PE is lower than the current PE for the CA Electric Utilities industry at 21.2x.
• Analysts expect the number of shares outstanding to grow by 1.27% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.06%, as per the Simply Wall St company report.

Fortis Future Earnings Per Share Growth

Risks

• Fortis faces ongoing regulatory lag and pushback in multiple jurisdictions (e.g., allowed ROE reductions in Alberta, the need for regulatory approval in Arizona), which could lengthen revenue realization cycles and cap potential EBITDA and net margin expansion.
  
• Dependence on sustained capital expenditures (~$2.9 billion invested in H1 2025; $14 billion targeted rate base increase by 2029) increases leverage and exposure to rising long-term interest rates, elevating debt service costs and pressuring net earnings and credit ratings.
  
• Emerging policy shifts, such as British Columbia's ongoing CleanBC review and evolving federal/provincial stances on natural gas infrastructure, introduce uncertainty around future gas connections and demand, potentially constraining long-term revenue growth for FortisBC.
  
• Reductions or eventual phase-out of renewable energy tax credits in Fortis's U.S. markets could make future grid investments less cost-effective, diminishing rate base growth opportunities and impacting customer affordability, which could slow revenue and earnings growth.
  
• The increasing adoption of distributed energy resources (like rooftop solar, batteries, microgrids) and the potential slowdown in mass-market electrification in slower-growing service territories threaten long-term electricity demand growth, limiting top-line revenue expansion for Fortis's legacy grid infrastructure.

Valuation

• The analysts have a consensus price target of CA$68.062 for Fortis 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$77.0, and the most bearish reporting a price target of just CA$46.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$13.8 billion, earnings will come to CA$2.1 billion, and it would be trading on a PE ratio of 20.5x, assuming you use a discount rate of 6.1%.
• Given the current share price of CA$68.17, the analyst price target of CA$68.06 is 0.2% 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.