Cautious Outlook on Fortis: Sell Rating Amid Premium Valuation and FX Challenges

Bank of America Securities analyst Ross Fowler reiterated a Sell rating on Fortis (FTS – Research Report) yesterday and set a price target of C$67.00.

Ross Fowler’s rating is based on several factors that contribute to a cautious outlook for Fortis. Despite a slight earnings per share (EPS) beat in the first quarter, driven by rate base growth and favorable foreign exchange (FX) conditions, the company’s modest EPS growth and premium valuation remain concerning. The stronger U.S. dollar, while boosting earnings, also increases Fortis’s reported debt, putting pressure on its leverage ratio targets. This FX exposure could lead to cash flow mismatches given that a significant portion of shareholders are based in Canada, and dividends are paid in Canadian dollars.
Additionally, although Fortis’s credit ratings have been reaffirmed, the company is not looking to increase leverage to fund its substantial capital plan. Instead, it may rely on its equity program or asset sales if necessary. While the company’s growth guidance remains intact, any new growth opportunities or long-term tariff challenges could prompt a reassessment of its capital funding strategy. Overall, the current valuation, which trades at a premium compared to its peers, suggests a more cautious stance is warranted, leading to the Sell rating.

Fowler covers the Utilities sector, focusing on stocks such as Northwestern, Consolidated Edison, and American Electric Power. According to TipRanks, Fowler has an average return of 3.6% and a 59.89% success rate on recommended stocks.