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Investing.com -- Eversource Energy (NYSE:ES) stock fell 11% after Connecticut regulators denied the utility company’s request to sell its Aquarion Water Company subsidiary.
The Connecticut Public Utilities Regulatory Authority (PURA) unanimously rejected the proposed sale, citing failure to meet standards for managerial responsibility and governance, suggesting potential issues with oversight or customer advocacy.
The rejection comes as a significant blow to Eversource, as the Aquarion sale had been viewed by bullish investors as a key catalyst needed to support the continued positive re-rating of the company’s shares. Analysts suggest Eversource may now look to pursue a new buyer for the water unit.
According to Jefferies analysts led by Paul Zimbardo, the rejection was surprising given the lack of public support in Connecticut. They noted that an appeal of the regulatory decision is unlikely to succeed. The analysts suggested that today’s sharp share price decline indicates the stock had become a consensus long position with a potentially fragile investor base.
"In our view, PURA’s decision largely dispels a key tenet of the bull thesis related to improving Connecticut regulatory environment," the Jefferies analysts wrote.
Scotiabank analyst Andrew Weisel, who maintains a sector underperform rating on the stock, lowered his price target to $63 from $64 following the news. "ES remains our least favorite regulated utility stock," Weisel wrote. "The unanimous rejection from PURA reinforces our view that CT remains an extremely challenging regulatory environment, possibly still the toughest in the country."
Without the sale, Scotiabank believes Eversource will face significant balance sheet challenges and will need to raise substantially more equity capital.
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