Eversource Energy (ES)

Total return at 5 years: 12.6%/year = 7.7% appreciation + 4.9% dividend. The target price ($96) is ex-dividend; the $19 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $143 · Multiples $93) exceeds the market price ($66).

Today — fairly valued: at $66 trades ~29.1% below its value discounted to today (~$93); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — Infravalorado: the target price ($96) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$60.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($66) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-10.5%/year) than we project (6.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$1.1 bn of owner earnings in year 5 (vs ~$2.5 bn of our base case). It recalculates if the DCF assumptions are edited.

A regulated utility is valued on P/E over adjusted earnings (equity-level): the value sits in the regulated base (rate base), which grows with capex at an allowed ROE. GAAP can be depressed by the mark-to-market of hedges → the adjusted figure is used. It returns capital via dividend (a dividend aristocrat); it may issue some equity to fund capex. Total return adds the dividend collected along the way. In edit mode, the metric, shares, dividend, and exit multiple can be adjusted.

Year 0 = TTM to 30-Jun-2026 ($4.91 non-GAAP EPS, from levels: FY2025 $4.76 − H1'25 $2.45 + H1'26 $2.60). The 8-K of 30-Jul-2026 reaffirms FY2026 guidance of $4.57-$4.72 (midpoint $4.65) and annual EPS growth of 5-7% through 2030 taking 2026 as the base year, with the acceleration toward the upper half of the range only from 2028. The path starts from that guidance (§5 R1 prior), not from the trajectory: year +1 falls to $4.65 (−5.3% versus the TTM), a decline with a named and verifiable cause — the sale of Aquarion Water (closed 30-Jun-2026, no longer contributing in H2) and the FERC transmission ROE cut from 10.57% to 9.57% (March 2026), which hit the TTM only partly. It is the R3 rebound exception (trough and recovery, not a monotonic deceleration), declared. Shares: no buybacks (Eversource has no program); they grow ~3%/year on ATM issuance that funds the regulated capex plan (§6, genuine non-SBC dilution, not expensed in the metric). Maintenance capex ≈ D&A: the exception to Greenwald (§3) is declared because in a regulated utility capex IS the cause of allowed rate growth, not the effect of higher revenue — applying Greenwald literally would invert the causality.

Today's multiple compresses on its own going forward as the metric per share grows. The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—. Total return adds the dividend collected; the required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $96 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $66, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $96 in 5 years plus $19 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $93. Against the current market price ($66), the margin of safety is 29.1% (trades below the maximum → there is margin) and the total return at that price would be 12.6% annually.

• P/E 14× within band. Entry multiple consistent with the utility band [15x-18x], with no marked discount or premium.
• Dividend yield 4.8%. Majority component of the expected total return for a mature utility.
• Total return +13% vs 15% hurdle. Determines the thesis verdict Undervalued.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (100%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Earned ROE below authorized. 8.9% GAAP TTM vs 9.32%-9.57% authorized, due to recent non-recurring charges.
• Low effective tax rate (7.6% FY2025). Tax credits and excess deferred tax amortization on regulated investment — real, not an artifact, but inflates owner earnings vs a typical rate.
• Capex at 1.8x depreciation. Mostly investment into the regulated base with a guaranteed return, not speculative capex.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

In a regulated utility, growth does not come from volume × price (volume is flat or declining due to energy efficiency) but from capex deployed into the rate base × the ROE allowed by the regulator, passed through to rates via annual reconciliation mechanisms. Revenue breakdown by reportable (GAAP) segment was not available in the extracted MD&A — only net income by segment — so the drivers above use the customer, rate-base, and capex-plan series actually disclosed by the company, rather than estimating an undisclosed segment revenue (§0).

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Explicit 5-7% EPS guidance through 2030. Verifiable anchor in the 8-K, with acceleration toward the upper half guided for 2028.
• $26,510M capex plan already committed. Gives visibility into rate-base growth over the next 5 years.
• Growth diluted by share issuances. Per-share EPS grows slower than aggregate net income due to ATM dilution.

• Regulated monopoly with no generation exposure. Earns only on the delivery margin, with commodity pass-through and no energy price risk.
• No possible competitive entry. Exclusive franchises and a legal prohibition on self-generation in Connecticut.
• Structurally flat volume. Growth depends on the rate base, not higher consumption per customer.
• Simplified profile after the Aquarion sale. There is no longer a water business or offshore wind; the focus is 100% electric and gas delivery.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• !Regulated return (earned vs allowed ROE)Earns 8.9% vs allowed 9.5%
• !Value creation (allowed ROE − 10% bar)-0.5pp
• ✓Leverage (net debt / EBITDA)5.2x · Not available in the extracted data (pending S&P/Moody's/Fitch verification)
• ✓Predictability (% regulated + rate-base growth)100% regulated · rate base +$5.3 bn/year

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Net debt/EBITDA ~5.2x. Elevated leverage but typical of a capex-intensive utility with predictable regulated cash flow.
• Reported FCF barely positive. TTM operating cash ($4,430M) barely covers capex ($4,159M); the plan is funded with additional debt and equity.
• No unregulated business adding risk. 100% regulated following the Aquarion and offshore wind sales.
• Credit rating not verified. Not available in the extracted data — declared gap, not assumed.

• CEO and Chairman of the Board at the same time. Nolan has held both roles since 2023, with no visible governance counterweight in the extracted data.
• No buybacks, no M&A. 100% organic capital allocation into the regulated base, consistent with a utility profile.
• Ownership not verifiable. The DEF 14A proxy did not yield a parseable ownership table — declared gap, not invented.

• Motivated sellers: GAAP over the past three years has been depressed by a chain of non-recurring, verifiable one-offs — the $2,167M pretax loss on the offshore wind divestiture (FY2023), the impairment and subsequent sale of Aquarion Water (FY2024-2026), and the charge from the FERC ROE cut (H1 2026) — which hit GAAP EPS without reflecting deterioration in the underlying regulated business.
• Relative missing buyers: cumulative 5-year performance well below both the EEI utility index and the S&P 500 suggests a stock penalized by noisy recent results, in a sector with relatively little attention outside specialized income/dividend investors.
• Over-punished recovery: with Aquarion and offshore wind now outside the perimeter, the remaining business is a simpler, more predictable regulated monopoly than the one that generated the one-offs of the past three years.

The earnings 8-K itself names the concrete causes of the discount (Aquarion sale, FERC ROE cut), so this is not a case of an absent catalyst (§3 Step 9): the reasons for the current price are verifiable in the filing, not an analyst conjecture.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +9%/year (+52% total): the margin of safety protects the downside. The bull (+15%/year, +101% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Four claims pending before FERC. Challenge the base transmission ROE; an adverse decision would reduce the return on ~$11,300M of rate base.
• Regulatory pressure over bill affordability. May harden upcoming state rate reviews.
• Contingent liability from the sold offshore wind assets. $448.2 million at the close of 2025, subject to post-closing price adjustments.
• Climate risk of non-recoverable restoration costs. Severe storm costs that a regulator might not recognize as prudent.
• Cybersecurity. The sector is an increasing target of sophisticated attacks on transmission and distribution systems.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROE 9% does not clear the 10% bar (regulated return by design).

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 6% at a PEG of 2.3 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).

• Howard Marks Perception vs reality + cycle

  The price discounts -10% vs our 6%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor +3%/yr, bull-scenario ceiling +10%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, efficient scale, cost advantage, switching costs → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -10%, within what we project (6%) — the story squares with the numbers.