Eversource Boosts Investment Plan; Raises Dividend 6%

We are reaffirming our $74 per-share fair value estimate for Eversource after the company announced it earned $4.09 per share on an adjusted basis in 2022, up 6% from 2021 and in line with our outlook. We are reaffirming our no moat and stable moat trend ratings for Eversource.

The board recently raised the dividend 6% to $2.70 per-share annualized, in line with our expectations. This implies a 3.4% yield as of Feb. 14, in line with the median U.S. utilities sector yield.

Management reaffirmed their 5% to 7% annual long-term growth rate, in line with our outlook. Management’s $4.25 to $4.43 EPS guidance for 2023 is also in line with our outlook.

The biggest development in 2022 was a regulatory decision in Massachusetts that allows Eversource subsidiary Nstar to raise electric rates $64 million and implement a five-year performance-based rate plan that adjusts rates for Eversource’s capital investments and operating cost changes. The ruling allowed a 9.8% return on equity and the potential to earn up to 10.8%, both constructive outcomes in our opinion.

We also consider the decision a sign of support for growth investment at Nstar. Management raised their five-year capital investment plan to $21.5 billion from $18.1 billion, primarily due to more investment at Nstar. We already expected management to raise their total plan given support in Massachusetts, but the new plan tops our outlook. We think there could be additional upside to Eversource’s plan in 2024 and beyond if Connecticut regulation improves.

We expect new equity issuance and higher interest and pension costs to offset the incremental value that accrues from this additional capital investment, leading to no change in our fair value estimate.

Eversource’s offshore wind divestment appears to be taking roughly six months longer than management initially expected. We’re not surprised given the huge size of the portfolio and uncertainty around prices for all renewable energy projects.