Fortis (FTS) Q3 2026 Earnings Call Transcript

Fortis reported Q3 2026 net earnings of C$474 million, or C$0.92 per share, up from C$409 million, or C$0.81, a year earlier; adjusted EPS increased C$0.05 year over year, primarily on rate-base growth. The company raised its 2027–2031 capital plan by C$3.4 billion to C$32.2 billion, targeting 7.5% rate-base CAGR, and increased its quarterly dividend 4% to C$0.665 per share while extending 4%–6% annual dividend-growth guidance through 2031. Management expects the plan to be primarily funded through operating cash flow and utility debt, with C$250 million of ATM equity issuance planned over the next 12 months; regulatory lag and execution needs remain considerations.

Analysis

FTS’s upside is less about the headline rate-base trajectory than whether capital turns into timely, recoverable earnings. Regulated transmission spend offers comparatively visible growth, but regulatory lag means capex can precede rate recovery; the TEP order and its delayed adjustment mechanism are a near-term test of that conversion. Meanwhile, a larger funding burden makes per-share growth—not just rate-base growth—the key metric: ATM issuance and hybrids can preserve credit headroom but may dilute equity or increase financing costs if project returns lag.

The market may be over-crediting the data-center pipeline. ITC’s prospective load is not equivalent to committed customers or approved investment; conversion, interconnection timing, and customer-funded system upgrades matter. Tilbury adds a separate execution and policy exposure: Phase 1B and storage are nearer-term, while the larger liquefaction opportunity remains contingent on permitting, a final investment decision, gas supply, and contracted demand. Higher-for-longer rates or tighter rating-agency thresholds could also compress utility multiples even if operating delivery remains sound.

Over days, the TEP final order is the clearest catalyst. Over 1–3 months, watch credit metrics, ATM use, and project contracting. Over 6–18 months, data-center commitments and Tilbury FID determine whether pipeline becomes incremental earnings. No valuation or share-price context is provided, so the call supports a watchlist/conditional position rather than an unconditional chase.

Key Decisions for Investors

• Do not chase the growth headline without valuation context. Consider a measured long in Fortis Inc. (TSX: FTS) on sector-driven weakness, contingent on the final TEP order preserving a credible path to timely rate recovery.
• Track TEP’s final commission order and subsequent regulatory-lag disclosures; weaken the thesis if allowed returns or recovery mechanisms materially undercut the recommendation, or if earnings guidance is reduced.
• Treat ITC’s load pipeline and Tilbury Phase 2 as upside optionality, not base-case earnings. Upgrade conviction only on signed customer agreements/approvals and a Tilbury FID with credible offtake and supply arrangements.
• Monitor FFO-to-debt, equity issuance, and financing costs against management’s stated buffer. Reassess if credit metrics approach the threshold or ATM issuance rises without corresponding approved, rate-recoverable investment.