On Thursday, Eversource Energy (NYSE:ES) experienced a downgrade in its stock rating by Scotiabank (TSX:BNS), moving from 'Sector Perform' to 'Sector Underperform.' Alongside the downgrade, the bank also reduced its price target for the company's shares from $66.00 to $56.00.
The downgrade comes in light of several challenges that Eversource is expected to face. The company's shares have significantly underperformed year-to-date, and investor sentiment towards the stock is decidedly negative. Despite the stock's low valuation, Scotiabank maintains a bearish outlook due to what it sees as an unattractive risk/reward scenario moving forward.
Eversource Energy is poised to engage extensively with regulators in the upcoming year, particularly in Connecticut, which the bank views as the worst regulatory jurisdiction in the U.S. The utility company will be seeking approvals for two rate cases, Advanced Metering Infrastructure (AMI) spending, and an asset sale in 2025. Scotiabank expresses caution regarding each of these upcoming regulatory interactions.
Further concerns are raised regarding Eversource's base-case earnings per share (EPS) growth outlook, which is slightly below average. The bank notes there is little to be optimistic about outside of Connecticut, and it also points to Eversource's less-than-stellar record in delivering EPS in line with guidance.
Moreover, the company's balance sheet is considered weak, and recent credit downgrades related to regulatory issues have placed its ratings significantly below those of its peers, exacerbating concerns about affordability.
In adjusting the price target, Scotiabank now applies a substantial 35% discount to its sector anchor multiple of 16x, a significant increase from the previous 20% discount. This revision is based on the bank's 2027 EPS estimate, which also incorporates a sector-wide roll-forward.
With these factors in mind, Scotiabank anticipates a 3% downside for Eversource Energy's stock, leading to the decision to downgrade its rating. Eversource is now considered Scotiabank's least favored utility stock in the U.S. market.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.