On Friday, BofA Securities Fortis Inc. (NYSE::CN) (NYSE: FTS) issued an Underperform rating and a C$60.00 price target, based on below-average earnings growth expectations and potential constraints due to the company’s financial position.
Fortis, a Canadian utility holding company that operates 10 regulated utilities across North America, is expected to achieve a compound annual growth rate (CAGR) of 4.6% in earnings per share (EPS) based on its base capital plan. BofA Securities expects that any earnings boost from additional spending may be limited by the need for capital to support the company’s tight balance sheet.
The price target set by BofA Securities suggests a small downside of -1% and a potential total return of 3%. The valuation reflects the analyst’s view that the current portfolio and balance sheet do not justify a premium of more than 10% compared to the group.
ITC Holdings Corporation, a key part of Fortis’ portfolio, is the largest independent electricity transmission company in the U.S. The company is viewed as a solid asset that could provide attractive investment opportunities over the next decade. Nonetheless, ITC only accounts for one-third of the total regulated EPS split projected for 2026, weighing on analysts’ valuations.
Fortis’ share price performance and future prospects are now being scrutinized more closely following the restatement and target price setting. Investors and market participants will be focusing on how the company’s financial strategy and investment opportunities will unfold over the next few years.
In other recent news, Fortis reported strong second quarter 2024 results, with adjusted earnings per share (EPS) increasing to $0.67 year over year. The company also confirmed its commitment to a $4.8 billion annual capital plan, investing $2.3 billion in capital projects to improve system reliability and support clean energy initiatives. Similarly, Fortis’ fee base is forecast to grow to more than $49 billion by 2028, and the company maintained its annual dividend growth guidance of 4% to 6% through the same year.
However, BofA Securities reinstated an underperform rating on Fortis shares, citing concerns about the company’s growth prospects and balance sheet strength. Based on the company’s current capital plan, the analyst predicts that earnings per share (EPS) will achieve a below-average compound annual growth rate (CAGR) of 4.6%.
On the regulatory front, an Iowa Supreme Court ruling has allowed the company’s largest asset, ITC Midwest, to move forward with its Tranche 1 project. Analysts expect Fortis’ rate base to grow significantly by 2028 as it executes on a growth strategy that includes expanding into clean energy and electrification. Finally, Fortis is seeking to push for regulatory changes in Arizona to catch up as part of its ongoing efforts to explore additional growth opportunities.
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