ES Eversource Energy
Rate-base growth is real, but Connecticut regulation caps returns near the cost of equity; the stock is fairly priced.
The story
Eversource is a pure-play regulated wires and gas utility across CT, MA and NH. Its offshore wind exit is largely done (the 2023 impairment explains the 4.9% margin), and it is selling Aquarion water to repair its balance sheet. Earned returns trail allowed returns, mainly because Connecticut's PURA has been hostile, though the commission's recent leadership change and settlements point to modest improvement. Leverage is high (FFO/debt near the downgrade threshold) and heavy rate-base capex needs a steady supply of equity, so book growth depends on regulatory recovery.
I set normalized ROE at 9.8%, a little below the blended allowed returns of about 9.5-10.5%. That reflects persistent Connecticut under-earning, partly offset by MA/NH performance-based rate plans. Book grows about 6% near term, as the 7-8% rate-base CAGR is diluted by equity issuance, then fades to 4%, below the 5.31% risk-free rate. I used a beta of 0.6, a bit above the 0.55 sector anchor, to reflect the regulatory and balance-sheet risk.
Value drivers
| Return on equity (normalized) | 9.8% |
| Book-value growth (Y1) | 6.0% |
| Terminal book growth | 4.0% |
| Beta | 0.60 |
| Failure probability | 1.0% |
| Cost of equity | 8.0% |
Valuation bridge
| PV of excess returns | 2.41B |
| PV of terminal excess | 5.44B |
| Equity value | 23.81B |
| ÷ shares → per share | $63.22 |
Projected excess returns on equity
| Yr | Book equity | ROE | Excess return | PV |
|---|---|---|---|---|
| 1 | 16.20B | 9.8% | 289.77M | 268.28M |
| 2 | 17.17B | 9.8% | 307.16M | 263.28M |
| 3 | 18.16B | 9.8% | 324.90M | 257.84M |
| 4 | 19.17B | 9.8% | 342.95M | 251.98M |
| 5 | 20.19B | 9.8% | 361.24M | 245.73M |
| 6 | 21.22B | 9.8% | 379.71M | 239.13M |
| 7 | 22.26B | 9.8% | 398.27M | 232.22M |
| 8 | 23.30B | 9.8% | 416.86M | 225.03M |
| 9 | 24.34B | 9.8% | 435.38M | 217.60M |
| 10 | 25.36B | 9.8% | 453.77M | 209.97M |
Key risks
- Connecticut PURA disallowances or low allowed ROEs keep consolidated ROE below 9.5%
- Credit downgrade or forced equity issuance at depressed prices dilutes book value per share
- Higher-for-longer rates raise the cost of equity and financing for the large capex plan
Catalysts
- Constructive Connecticut rate case outcomes (CL&P, Yankee Gas) under the new PURA leadership
- Aquarion sale closing and FFO/debt recovering above 14%, removing equity overhang