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Research Alert: CFRA Downgraded Hydro One To Sell From Hold On Valuation Overextension

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CFRA, an independent research provider, has providedwith the following research alert. Analysts at CFRA have summarized their opinion as follows:

We lower our 3-STARS (Hold) rating to 2-STARS (Sell), which is largely a function of too premium a valuation, too low a dividend yield, and future bottom-line growth lacking in potential for upside. We decrease our target price from CAD61 to CAD52, which is derived from a blend of our earnings multiple and DCF model. We left our 2026 and 2027 adjusted EPS figures unchanged at CAD2.34 and CAD2.53, respectively. Our 21.0x earnings multiple applied to our 2027 estimate produces CAD53, while our DCF model yields CAD51. We lower our multiple to bring it into alignment with historical norms while maintaining a premium to peers. Over the last decade, H has traded at a forward earnings multiple of 19x versus the 25x it currently trades at. On a relative basis, it trades 6.7x above the peer average of 18.1x, which is above the 10-year average of 2.5x above the peer average. Q1 saw 10% growth in revenues (6% beat versus consensus) and EPS saw an 8% gain to CAD0.65 (a CAD0.01 beat).

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