Fortis (FTS) Q2 2026 Earnings Call Transcript

Fortis reported Q2 2026 net earnings of C$396 million (+C$26 million YoY) and EPS of $0.78 (+$0.02), driven by ITC/UNS rate-base growth and warmer weather despite regulatory lag and higher finance costs. Capital expenditures totaled C$2.7 billion year-to-date with C$5.6 billion targeted for full-year 2026, alongside a 7% average annual rate base growth outlook through 2030 and 4%–6% dividend growth guidance for 52 consecutive years. A key catalyst is BC provincial approval for Tilbury LNG Phase 1B with ~C$2.0 billion in regulated rate base investment, with construction expected to start in 2027 and an in-service target of 2031; management also sees ~C$2.1 billion of long-term debt issued in H1 2026 to fund growth.

Analysis

FTS remains a quality regulated compounding story, but the real upside is not the current dividend optics; it is the optionality from locking in customer-funded load growth before competitors do. If the data-center pipeline converts, the winner is the utility that can credibly say “no stranded cost” and push capex into rate base without socializing buildout risk — that supports FTS’s valuation relative to slower-growth North American utilities and should also pull through orders for grid equipment, gas infrastructure, and EPC capacity over the next 12-18 months.

The near-term risk is execution, not demand. Rate-base growth is only accretive if the allowed returns and timing keep pace with financing costs; otherwise EPS can lag capex and the market will treat the stock like a levered bond proxy. Watch the Arizona rate case, the BC permitting path, and the fall capital-plan reset: any slippage there would likely compress the multiple before the cash-flow benefits show up.

Consensus is probably underestimating how much of the “data center” narrative is still non-binding. The market tends to pay for queue size, but the valuation should depend on contracted economics and balance-sheet capacity; if management needs more equity than expected, per-share compounding slows even if project headlines stay positive. Falsifiers are straightforward: a materially weaker ROE outcome in Arizona, a delayed Tilbury timeline beyond 2027 construction, or incremental funding that pushes leverage/DRIP dilution above management’s current comfort zone.

Key Decisions for Investors

• Add/hold FTS on weakness into the Q3 capital-plan refresh; expect a steady 6-12 month re-rating only if management shows the funding mix remains debt- and cash-flow-friendly.
• Pair trade: long FTS / short XLU for a 3-6 month catalyst window if you want exposure to visible regulated growth plus data-center optionality rather than a generic utility basket.
• Use the Nov. 17 Arizona rate-case decision as the key risk checkpoint: trim 25-33% of the FTS position if the allowed return comes in meaningfully below management’s ask or if implementation slips further.
• Do not chase the name on the Tilbury headline alone; wait for the Q3 funding plan update to confirm whether incremental capex is accretive after financing before adding aggressively.
• If you want lower-risk upside exposure, buy FTS on pullbacks rather than chasing breakouts; the stock should behave more like a slow-burn compounder than a momentum trade.