Eversource 能源

The northeast US electric grid operator, ISO New England, selected in a competitive-bid process a large joint transmission project proposed by Eversource and Avangrid to alleviate anticipated grid constraints beyond 2030.

Why it matters: The successful Transmission Initiative Down East, or TIDE, project proposal shows that Eversource can continue to find investment opportunities that produce earnings growth and customer benefits, particularly in transmission. Eversource will be responsible for parts of the TIDE project in New Hampshire, Maine, and Massachusetts. Management recently estimated Eversource's share of the $2.2 billion project would be about $700 million. We expect management to add this to its capital investment plan starting in 2029.

The bottom line: We are reaffirming our $73 fair value estimate and no-moat rating for Eversource. The stock trades at an 8% discount to our fair value estimate and 14.5 P/E ratio as of Sept. 16, both discounts to other US regulated utilities. We assume 6% annual earnings growth through 2030 based on adjusted 2026 earnings. This aligns with management's 5%-7% target.

Big picture: We continue to assume modest upside to management's five-year $26.5 billion investment plan, which does not include TIDE. Our 2026 EPS estimate is in line with management's $4.57-$4.72 guidance, adjusted for the Aquarion sale timing.

Coming up: Connecticut regulators are reviewing terms of a storm cost securitization that could bring in $668 million of cash in 2027. Separately, proceedings continue in Eversource's $441 million electric rate increase request filed in July. The Federal Energy Regulatory Commission might rule by Nov. 30 on a long-running case involving the allowed return on equity used to set transmission rates. A favorable outcome would release $0.12 per share of earnings from reserved rate refunds and avoid potential future refunds.

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Our fair value estimate is $74 per share after incorporating recent financial results and updates, including possible transmission rate refunds and the Aquarion sale closing.

We assume Eversource invests $21 billion in 2026-29 at its electric and gas utilities, slightly above management's plan. We also assume Eversource receives constructive regulatory rulings.

Our investment outlook supports our 6% average annual earnings growth forecast, in line with management's 5%-7% target. Growth likely will be slower in 2026 and 2027 due to higher financing costs, but we think growth will accelerate in 2028 and beyond.

Incremental investment opportunities particularly in Massachusetts should offset any regulatory setbacks. We assume management can keep operating cost growth below inflation to help limit customer rate increases.

The Aquarion sale that closed in June 2026 had no material impact on shareholder value given its small size relative to Eversource's other utilities.

We assume a 6.9% cost of equity and a 5.7% cost of capital in our discounted cash flow valuation.

We do not think Eversource has an economic moat. Although Eversource has service territory monopolies and efficient scale advantages like most regulated utilities, we are not confident that Eversource can achieve and maintain a positive spread between long-term earned returns on capital and costs of capital for more than 10 years, the threshold to earn a narrow moat rating.

The primary reasons for this uncertainty are Eversource's history of challenging regulatory relations and struggles executing projects outside of its core utilities. This has depressed returns on capital.

Connecticut, which represents about 20% of Eversource's earnings, remains a volatile regulatory environment. Concerns about high utility customer bills in the region have pushed regulators to limit rate increases. It has a pending request for a $451 million rate increase that could be decided by mid-2027.

Regulatory relationships had been improving until power outages related to Storm Isaias in 2020 renewed regulatory animosity. Turnover at the five-person commission in late 2025 could lead to more constructive ratemaking.

Prior to Isaias, Eversource had secured its most constructive regulatory outcome in Connecticut in recent history with a three-year rate settlement in February 2018 that included a rare increase in its allowed return on equity to 9.25% and rate decoupling. This ended a four-year stretch with no rate increases and brought its allowed ROE closer to other US utilities.

Before the 2018 settlement, regulators in 2014 had approved only half of Eversource's rate increase request and cut its allowed ROE to 9.09% for 2014-15 and 9.17% beyond 2015. The US average awarded ROE topped 10% at the time. Connecticut regulators in 2010 approved just 57% of Eversource's requested rate increase with a 9.4% allowed ROE, among the lowest in the US at the time.

Massachusetts and New Hampshire remain mostly constructive regulatory environments. Massachusetts regulators support multiyear, performance-based rate plans, which we consider more constructive than traditional cost-of-service ratemaking. Massachusetts regulators most recently have supported Eversource's investments to make the electric grid more efficient and reliable.

Eversource's interstate transmission business is more than 40% of consolidated earnings and benefits from constructive federal ratemaking. However, it has been facing rate challenges from large customers for more than a decade.

In 2014, the Federal Energy Regulatory Commission cut Eversource's interstate transmission allowed ROE to 10.57% from 11.14%, leading to a $0.10 per share charge (4% of consolidated earnings). Eversource took another small charge in early 2026 for a transmission rate cut ruling that it is challenging.

Management did an impressive job managing costs and realizing savings since its 2012 merger with NStar. This is one way it has earned back support from regulators and stabilized returns on capital while pursuing an aggressive investment plan. Eversource also is engaging policymakers on issues such as lowering energy prices in the Northeast and increasing the region's share of renewable energy.

Eversource raised its dividend 5% to $3.15 per share annualized for 2026, continuing a long streak of robust dividend increases that we think will continue for at least several more years.

Upgrading the Northeast's energy infrastructure to accommodate state renewable energy mandates presents a growth opportunity for Eversource.

Even though federal transmission returns have come down, they still represent a premium to allowed returns in the states where Eversource operates.

High energy prices in the Northeast can lead regulators to lower the returns Eversource is allowed to earn on its infrastructure investments, potentially depressing Eversource's earnings growth.

Eversource's experience with the Northern Pass transmission project and offshore wind shows how difficult it is to gain support for large energy infrastructure projects.

Rising interest rates could make Eversource a less attractive investment relative to fixed-income alternatives.