Fortis Earnings: Investments and Regulatory Outcomes Support Earnings

We are maintaining our CAD 58 per share fair value estimate for Fortis FTS after the company reported third-quarter adjusted earnings of CAD 0.84 per share compared with CAD 0.71 in the same year-ago period. The company extended its 4%-6% dividend growth outlook through 2028, in line with our estimates.

Fortis’ stock now trades at a 5% discount to our fair value estimate as of Oct. 27 after trading at an 8% premium to our fair value in mid-May. Our narrow economic moat rating remains unchanged.

The company recently announced its updated 2024-28 CAD 25 billion capital investment plan, a CAD 2.7 billion increase over the previous five-year plan. The plan supports consolidated rate-base growth of over 6%, with the largest driver of the growth at its transmission subsidiary ITC. The company is on track to spend CAD 4.3 billion in 2023, having spent CAD 3 billion year to date.

In Arizona, TEP received a final order in its rate case, allowing for a 9.55% return on equity, which we view constructively in a region where regulation has been difficult lately. The allowed ROE was above both the administration law judge’s recommendation and regulatory staff’s recommendation. The final outcome was in line our estimate.

At FortisBC in British Columbia, the unit received a 9.65% allowed ROE in a region where returns are typically below allowed returns in the U.S. The decision is retroactive to January 2023. A general rate application at CH Energy remains ongoing.

Earnings in the quarter benefited from increased investments across its subsidiaries, supportive regulatory outcomes, and favorable weather. Partially offsetting these benefits were more shares outstanding.