Eversource Energy: Expensive Valuation With A History Of Earnings Misses

Jul. 26, 2022 12:29 PM ETEversource Energy (ES)1 Comment

Summary

  • The Utilities sector was a popular play through much of 1H22 as investors found stability in the value theme.
  • Eversource Energy is a steady, dividend-paying, firm, but looks expensive given a high P/E ratio.
  • Ahead of Q2 earnings on Thursday, the market expects a somewhat small move on this rangebound stock.

Confident male engineer using a laptop in front of electric power station

SimonSkafar

The Utilities sector had a remarkable first half of 2022 compared to the S&P 500’s weak start. Investors found some safety in the relative stability of power generation companies that also pay out steady dividends. Moreover, the value theme featured significant alpha relative to growth through mid-June. Lately, however, high-duration plays have made a comeback. The Utilities Select Sector SPDR Fund (XLU) has retreated on both an absolute and relative basis since late in Q2 and earlier this month.

Utilities Giving Up Relative Strength

Utilities Giving Up Relative Strength

Stockcharts.com

Within the “utes” space is Eversource Energy (NYSE:ES). According to Bank of America Global Research, Eversource is a regulated utility company providing electric and gas distribution as well as electric transmission services to customers in CT, MA, and NH. It also owns a water utility (Aquarion) which serves the same three states. According to The Wall Street Journal, the $30 billion market cap stock features a dividend yield of 3.0%.

Eversource is not a cheap stock – like so many utility companies at the moment. According to data from Koyfin Charts, its forward P/E ratio is above 20. That’s significantly above the stock’s 20-year average valuation which is near 16-times next 12-month earnings.

ES's Price-to-Earnings Multiple History: Richly Valued Today

ES: Price-to-Earnings Multiple History: Richly Valued Today

Koyfin Charts

Analysts at BofA see steady growth in Eversource's earnings per share. Assuming 6% to 7% annual earnings increases through 2024, if the stock price stays the same, its earnings multiple would contract to 19 – still high. Its yield is forecast to be steady around 3%. Unfortunately, free cash flow may be negative through the next two full calendar years.

Eversource Energy's EPS, Valuation, Dividend Yield Forecasts

Eversource Energy: EPS, Valuation, Dividend Yield Forecasts

BofA Global Research

Corporate event data from Wall Street Horizon shows a confirmed earnings date of Thursday, July 28, AMC with a conference call the following morning.

Eversource's Corporate Event Calendar: Earnings Date On Tap

Eversource's Corporate Event Calendar: Earnings Date On Tap

Wall Street Horizon

Earnings Calendar

Earnings Calendar

Wall Street Horizon

Options data from ORATS show an expected earnings-related share price move of plus or minus 3.7% based on the nearest-expiring at-the-money straddle. The consensus EPS forecast for its Q2 reporting date is $0.84. There have been two downward earnings revisions since the last quarterly report. Adding to the bearish valuation is a poor EPS beat rate history – ES has missed earnings estimates in four of the last five quarters.

Earnings Trading Data: Recent EPS Misses, 3.7% Implied Move This Week

Earnings Trading Data: Recent EPS Misses, 3.7% Implied Move This Week

ORATS

The Technical Take

Eversource’s chart shows trendless action. Traders are well-served playing the range until there are definitive signals of a bullish breakout or bearish breakdown. For now, resistance is in the $93 to $96 range while $76 to $78 is support. Should the stock breakout, the measured move would be about $113 while a breakdown would leave the stock technically vulnerable to a drop toward the $59 level.

ES: Wide Trading Range. Wait For A Breakout Or Breakdown

ES: Wide Trading Range. Wait For A Breakout Or Breakdown

Stockcharts.com

The Bottom Line

Eversource is a steady Utilities stock that finds itself in a broad trading range ahead of key earnings Thursday morning AMC. The options market expects a rather muted share price reaction, but recent EPS misses along with a high valuation make the stock unattractive in the short term and for long-term investors right now.

This article was written by

CFA & CMT Charterholder | Freelance Financial Writer at SoFi & Ally | Investments | Markets | Personal Finance | RetirementI create written content used in various formats including blogs, emails, white papers, and social media for financial advisors and investment firms in a cost-efficient way. My passion is putting a narrative to financial data. Working with teams that include senior editors, investment strategists, marketing managers, data analysts, and executives, I contribute ideas to help make content relevant, accessible, and measurable. Having expertise in thematic investing, market events, client education, and compelling investment outlooks, I relate to everyday investors in a pithy way. I enjoy analyzing stock market sectors, ETFs, economic data, and broad market conditions, then producing snackable content for various audiences. Macro drivers of asset classes such as stocks, bonds, commodities, currencies, and crypto excite me. I truly enjoy communicating finance with an educational and creative style. I also believe in producing evidence-based narratives using empirical data to drive home points. Charts are one of the many tools I leverage to tell a story in a simple but engaging way. I focus on SEO and specific style guides when appropriate. My CFA and CMT backgrounds demonstrate prowess in investment management and my professional experience includes extensive public speaking and communication. Moreover, my extensive university teaching and professional trading experience provide useful skills. Past roles also include heavy use of Excel modeling and chart creation as well as PowerPoint.I am a contributor to The Dividend Freedom Tribe. I am a contributor to Topdown Charts.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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