EUR 850.00 For Business Accounts Only

Morningstar | Fortis Caps Off Sound Strategic Year; Reports Full-Year Results

We are reaffirming our CAD 48 fair value estimate, along with our narrow economic moat and stable moat trend ratings, after Fortis reported full-year adjusted earnings of $2.51 per share compared with $2.47 in the year-ago period. Management reaffirmed its 6% dividend guidance to 2023, in line with our estimates.

Management recently announced a definitive agreement to sell its 51% ownership stake in the Waneta Expansion for $1 billion to Columbia Power Corporation and Columbia Basin Trust, the current minority owners. The transaction satisfies management's targeted $1 billion to $2 billion of asset sales to fund Fortis' $17.3 billion capital plan from 2019 to 2023.

The sale represents a nice return for Fortis compared with the original $500 million investment in 2015. The sale also eliminates the need for incremental equity to fund its investment plan. Finally, the transaction will help management meet its goal to reduce holding company debt as a percent of total debt to 33% in 2023 from 38% at year-end, one of the higher parent leverage ratios in the industry. Overall, we view the transaction positively. We like that management has sold what we view as a noncore asset at an attractive price with plans to reinvest in the company's regulated investments.

During the year, we liked management's renewed focus on its many internal growth projects. This is in stark contrast to Fortis' acquisitive past. Additionally, management has continued to execute on numerous capital growth opportunities, which should support more than 6% rate base growth through 2023.

Earnings for the year were negatively affected by U.S. tax reform and the loss of the ITC independence adder. Increased investments across its service territories and increased rates offset these headwinds.