Fortis Inc (TSE:FTS) has 3.2 million electric and gas customers and among 15 utilities in North America. Fortis generated over total shareholder return of 43.9% over the last 10 years, outperforming the S&P/ TSX index which delivered over 19.4% (as of November 25th; Source: Google finance). Fortis has been rewarding shareholders with solid dividends and anticipates growing their dividend per share by 6% per year on average through 2021. Fortis recently announced a quarterly dividend of $0.40 per share
Fortis has history of integrating utility acquisitions successfully. Fortis acquired Central Hudson and UNS Energy, from Arizona and New York respectively. In October, Fortis acquired ITC Holding Corporation (ITC), a major regulated electric transmission utility. The company has issued $2 billion unsecured notes to finance a portion of the acquisition. ITC rates are regulated by the FERC.
The acquisition enhanced Fortis’s regulatory diversity and simultaneously lowered its overall rate regulatory risk. This move further expands Fortis’s footprint into eight states in the Midwest region where Fortis did not had presence. Fortis has embarked capital expenditure through 2021 of $13 billion of which $3.5 billion would be in ITC. Fortis would invest in four multi value projects at ITC, three of which will be completed by the end of 2018 with the fourth scheduled to be completed in 2023.
Fortis reported earnings of $127 million for Q3CY16. Higher operating expenses and lower average energy consumption during the period impacted the earnings. Cash flow from operating activities was at $1.4 billion year to date.
Source: Fortis Q3CY16 presentation
Fortis believes to benefit from the impact of ITC for current year of 2017. The expected outcome of the TEP general rate case and continued growth of the underlying business would also contribute to the performance. Fortis is well positioned through the execution of its capital plan, and via the balance and strength of its diversified businesses and growth opportunities within its franchise region.
As per NASDAQ, Consensus rating on the Fortis stock is “Strong Buy” with a target price of $34.645. Recently, Desjardins in its research note issued recommended a “Buy” rating with price target of $46 on Fortis. Earlier CIBC enhanced their target on the group to C$47.00 as compared to C$44.00. Raymond James Financial Inc. reiterated “outperform” rating and has a target price of C$50.00. Fortis stock lost over 7.1% in the last four weeks but generated over 8.6% during this year to date (as of November 25th, 2016; Source: Google finance)