Eversource Energy’s SWOT analysis: utility giant’s stock faces regulatory hurdles

Eversource Energy (NYSE:ES), a major player in the U.S. Power & Utilities sector, has been navigating a complex landscape of opportunities and challenges. The company’s recent financial performance, strategic decisions, and future outlook have drawn significant attention from industry analysts. This comprehensive analysis delves into Eversource’s current position, future prospects, and the factors that could shape its trajectory in the coming years.

Recent Financial Performance and Outlook

Eversource Energy reported first-quarter 2025 earnings per share (EPS) of $1.50, aligning with analyst estimates and showing a slight increase of $0.01 from the previous year. The company has reaffirmed its 2025 guidance range of $4.67-4.82 EPS, demonstrating confidence in its near-term financial outlook. InvestingPro data reveals that Eversource has maintained dividend payments for 27 consecutive years, with a current dividend yield of 4.7% and a 5.2% dividend growth rate over the last twelve months. However, five analysts have recently revised their earnings expectations downward for the upcoming period.

The utility’s capital plan is set to drive approximately 8% rate base growth from 2023-2029, excluding Aquarion from 2023. This robust growth projection is further supported by an additional $1.5-2 billion in incremental capital opportunities identified by the company. Analysts project that this capital plan will contribute to steady EPS growth off the 2024 base.

Sale of Aquarion Segment

In a significant move, Eversource Energy announced the sale of its Aquarion segment to the Aquarion Water Authority for an aggregate enterprise value of approximately $2.4 billion. This transaction, expected to close in late 2025 pending regulatory approvals, includes $1.6 billion in cash and represents a multiple of about 1.7 times the December 2024 rate base.

The sale has been viewed favorably by analysts, with the equity proceeds and transaction multiple exceeding initial expectations. However, the company anticipates recording a loss of approximately $300 million in Q4 2024 due to the transaction, which includes estimated income tax expenses and a write-off of goodwill.

Capital Plan and Growth Projections

Eversource has reaffirmed its EPS growth projection of 5-7% through 2028, indicating confidence in its long-term strategy. The company’s management may update its long-term EPS compound annual growth rate (CAGR) through 2029 based on the 2024 results and potentially increase capital spending on decarbonization initiatives.

The utility’s strong capital plan is seen as a key driver for future growth. Analysts note that the plan supports rate base growth and provides opportunities for steady EPS increases in the coming years.

Regulatory Environment and Challenges

One of the primary concerns for Eversource Energy is the regulatory environment, particularly in Connecticut. Analysts have highlighted regulatory overhangs in this state as a potential headwind for the company. These challenges could impact Eversource’s growth trajectory and financial performance if not effectively managed.

The regulatory landscape plays a crucial role in shaping the utility’s operations and profitability. As such, Eversource’s ability to navigate these challenges and maintain positive relationships with regulators will be critical for its future success.

ESG Considerations

In an era where Environmental, Social, and Governance (ESG) factors are increasingly important to investors, Eversource Energy faces a unique challenge. While the company has achieved revenue growth of 10.8% over the last twelve months and maintains profitable operations with a gross margin of 53.7%, analysts have noted a lack of clear ESG sponsorship for the company compared to its peers in the utility sector. Discover comprehensive analysis and peer comparisons with InvestingPro’s detailed Research Reports, available for over 1,400 top US stocks. This could potentially impact investor perception and the company’s attractiveness to ESG-focused funds.

However, Eversource’s potential increase in capital spending on decarbonization initiatives suggests that the company is aware of this issue and may be taking steps to improve its ESG profile.

Bear Case

How might regulatory challenges in Connecticut impact Eversource’s growth?

Regulatory challenges in Connecticut pose a significant risk to Eversource Energy’s growth prospects. The utility sector is heavily regulated, and unfavorable regulatory decisions could lead to reduced rate increases, lower allowed returns on equity, or mandated operational changes. These factors could potentially limit Eversource’s ability to recover costs and invest in infrastructure, ultimately impacting its projected 5-7% EPS growth through 2028.

Moreover, ongoing regulatory overhangs may create uncertainty for investors, potentially affecting the company’s stock valuation. If Eversource struggles to maintain positive relationships with regulators in Connecticut, it could face difficulties in implementing its capital plan and achieving its rate base growth targets.

What are the potential risks of Eversource’s lack of clear ESG sponsorship?

Eversource Energy’s lack of clear ESG sponsorship compared to its peers presents several risks. In an investment landscape increasingly focused on sustainability and responsible corporate practices, this deficiency could lead to reduced interest from ESG-focused funds and investors. This may result in lower demand for Eversource’s stock and potentially impact its valuation.

Furthermore, the absence of a strong ESG profile could affect the company’s reputation among customers, regulators, and other stakeholders. This might lead to challenges in securing approvals for new projects, particularly those related to renewable energy or environmental initiatives. In the long term, if Eversource fails to improve its ESG standing, it could find itself at a competitive disadvantage in attracting capital and talent, as well as in pursuing growth opportunities in the evolving energy landscape.

Bull Case

How could the sale of Aquarion benefit Eversource’s financial position?

The sale of the Aquarion segment for $2.4 billion presents several potential benefits for Eversource Energy’s financial position. Firstly, the transaction is expected to generate $1.6 billion in cash proceeds, which could be used to strengthen the company’s balance sheet, pay down debt, or fund future capital investments. This influx of cash could provide Eversource with increased financial flexibility and potentially improve its credit metrics.

Analysts have noted that the transaction multiple of about 1.7 times the December 2024 rate base is favorable, exceeding initial expectations. This suggests that Eversource has successfully unlocked value from the Aquarion segment. The sale could allow the company to focus on its core electric and gas transmission and distribution businesses, potentially leading to improved operational efficiency and more targeted capital allocation.

Moreover, the divestiture may simplify Eversource’s corporate structure, making it easier for investors to value the company and potentially leading to a re-rating of the stock. The improved financial position could also enhance Eversource’s ability to pursue growth opportunities in its remaining business segments.

What opportunities does Eversource’s capital plan present for future growth?

Eversource Energy’s robust capital plan, which is set to drive approximately 8% rate base growth from 2023-2029, presents significant opportunities for future growth. The plan, supported by an additional $1.5-2 billion in incremental capital opportunities, provides a clear pathway for sustained expansion of the company’s asset base.

This substantial investment in infrastructure could lead to improved service reliability, increased capacity, and the ability to integrate more renewable energy sources into the grid. As utilities earn returns on their rate base, this growth directly translates into potential earnings increases, supporting Eversource’s projected 5-7% EPS growth through 2028.

Furthermore, the capital plan positions Eversource to capitalize on the ongoing energy transition. By investing in grid modernization and potentially increasing capital spending on decarbonization initiatives, the company could enhance its competitive position in the evolving utility landscape. This focus on future-oriented investments may also improve Eversource’s ESG profile, potentially attracting more sustainability-focused investors.

SWOT Analysis

Strengths:

• Strong capital plan supporting 8% rate base growth
• Steady EPS growth projections
• Successful sale of Aquarion segment at favorable terms
• Limited impact from tariffs due to proactive measures

Weaknesses:

• Regulatory challenges, particularly in Connecticut
• Lack of clear ESG sponsorship compared to peers
• Expected loss due to Aquarion sale transaction in Q4 2024

Opportunities:

• Potential for increased capital spending on decarbonization initiatives
• Improved financial flexibility from Aquarion sale proceeds
• Possible update to long-term EPS CAGR through 2029
• Securitization as proposed by SB1560 could provide additional flexibility

Threats:

• Ongoing regulatory overhangs in Connecticut
• Potential tariff impacts, although currently limited
• Increasing importance of ESG factors in investor decision-making
• Evolving energy landscape and transition to renewable sources

Analysts Targets

• BMO Capital Markets: $72 (May 5th, 2025)
• BMO Capital Markets: $68 (January 29th, 2025)
• Barclays (LON:BARC): Rating suspended (January 29th, 2025)

This analysis is based on information available up to May 22, 2025.

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