Raymond James Raises Fortis Price Target to C$72, Maintains Outperform Rating

Raymond James has increased its price target for Fortis (FTS) from C$69 to C$72 and maintains its Outperform rating. The company operates utility transmission and distribution subsidiaries across Canada and the US, serving over 3.4 million customers. Fortis reported a revenue of $8.5 billion with a 2.4% one-year growth rate and 14.98% net margin. However, its debt-to-equity ratio is high, and the Altman Z-Score places it in the distress zone. The company's revenue trends highlight steady growth, but its asset growth rate outpaces its revenue growth. Fortis' valuation ratios, including P/E and P/S, are nearing historical highs, indicating a potentially overvalued stock.

Raymond James has increased its price target for Fortis (FTS) from C$69 to C$72, maintaining its Outperform rating. Fortis operates utility transmission and distribution subsidiaries across Canada and the US, serving over 3.4 million customers. The company reported a revenue of $8.5 billion with a 2.4% one-year growth rate and a 14.98% net margin. However, Fortis' debt-to-equity ratio is high, and the Altman Z-Score places it in the distress zone. The company's revenue trends highlight steady growth, but its asset growth rate outpaces its revenue growth. Fortis' valuation ratios, including P/E and P/S, are nearing historical highs, indicating a potentially overvalued stock.

The stock has been strong performers lately, with a 5.2% increase over the past month and hitting a new 52-week high of $50.56. Fortis has gained 20% since the start of the year compared to the 11.8% move for the Zacks Utilities sector and the 12.4% return for the Zacks Utility - Electric Power industry [1]. The company's impressive record of positive earnings surprises, with no missed earnings consensus estimates in the last four quarters, contributes to its outperformance.

For the current fiscal year, Fortis is expected to post earnings of $2.49 per share on $9.02 in revenues, representing a 4.18% change in EPS on a 7.36% change in revenues. For the next fiscal year, the company is expected to earn $2.58 per share on $9.34 in revenues, representing a year-over-year change of 3.77% and 3.57%, respectively [1].

Valuation metrics show that while Fortis has moved to its 52-week high, investors should consider its valuation metrics. The stock currently trades at 20X current fiscal year EPS estimates, which is a premium to the peer industry average of 18.9X. On a trailing cash flow basis, the stock currently trades at 9.6X versus its peer group's average of 8.1X. Additionally, the stock has a PEG ratio of 3.91 [1].

Fortis has a Zacks Rank of #2 (Buy), thanks to a solid earnings estimate revision trend. The company's Value Score is C, with Growth and Momentum Scores of B and C, respectively, giving it a VGM Score of B [1]. Despite these positive indicators, the company's high debt-to-equity ratio and the Altman Z-Score in the distress zone warrant caution.

Raymond James' price target increase suggests confidence in Fortis' growth prospects, but investors should remain vigilant about the company's high debt levels and potential overvaluation. Fortis' steady revenue growth and positive earnings surprises make it an attractive investment, but the risk of overvaluation and high debt levels should be carefully considered.

References:

[1] https://www.nasdaq.com/articles/fortis-fts-hits-fresh-high-there-still-room-run