Executive Summary / Key Takeaways

• Strategic Transformation Complete: Eversource's exit from offshore wind and pending $2.4 billion Aquarion water sale mark a decisive pivot to a "pure-play pipes and wires" regulated utility model, eliminating $524 million in quarterly losses and freeing capital for core grid investments that will drive 5-7% EPS growth through 2029.

• Load Growth Inflection Point: Weather-normalized electric demand is accelerating to 2% year-to-date in 2025, nearly double prior rates, driven by electrification, data centers, and decarbonization. This creates a $24.2 billion capital investment opportunity through 2029, with transmission investments offering the highest regulated returns.

• Connecticut Regulatory Risk Is the Central Constraint: PURA's unanimous rejection of the Aquarion sale and ongoing challenges with storm cost recovery expose a regulatory environment that remains "possibly the toughest in the country," threatening the company's ability to earn its authorized returns and deploy capital efficiently.

• Balance Sheet Repair in Progress: Operating cash flow surged 110% to $3.2 billion in the first nine months of 2025, while the FFO-to-debt ratio is expected to exceed 13% by year-end. The Aquarion sale would add 100 basis points to this metric, but its rejection forces a more dilutive equity issuance path.

• Valuation Discount Reflects Regulatory Overhang: At $66.31, ES trades at a 26% discount to analyst fair value estimates, pricing in significant regulatory risk. The investment thesis hinges on whether Connecticut reforms (SB4) and management's regulatory engagement can transform the state's challenging environment into a constructive one.

Setting the Scene: The Making of a Pure-Play Powerhouse

Eversource Energy, incorporated in 1927 in Springfield, Massachusetts, has spent nearly a century building its position as New England's dominant energy delivery utility. For decades, the company operated as a traditional regulated utility, providing electric, gas, and water services across Connecticut, Massachusetts, and New Hampshire. This foundation created a durable moat: exclusive franchises serving 4 million electric customers and 3.7 million natural gas customers in a region with limited geographic alternatives and high barriers to entry.

The company's recent history, however, has been defined by a strategic transformation that reached its climax in 2024. After years of pursuing offshore wind development—a venture that generated $524 million in third-quarter losses when the company sold its stakes in Sunrise Wind, South Fork Wind, and Revolution Wind to Ørsted (ORSTED) and Global Infrastructure Partners—Eversource made a decisive pivot. Management recognized that the capital intensity, execution risk, and regulatory complexity of offshore wind were incompatible with the steady, predictable returns that utility investors demand. The exit eliminated a major source of earnings volatility and freed management to focus entirely on its core competency: operating and expanding regulated energy infrastructure.

This reshapes Eversource's risk profile in fundamental ways. Offshore wind projects carried construction risks, commodity price exposure, and federal policy dependencies that created quarterly earnings swings incompatible with a utility's investment thesis. By exiting these ventures, Eversource has transformed itself into what management calls a "pure-play pipes and wires regulated utility"—a business model that offers predictable rate base growth, regulatory recovery mechanisms, and stable cash flows. For investors, this means the company has eliminated a major source of downside risk while positioning itself to capture the accelerating demand for grid infrastructure.

The industry context makes this timing critical. New England is experiencing a load growth renaissance. Weather-normalized electric demand has accelerated to 2% year-to-date in 2025, nearly double the rate observed in the same period last year. This summer, the region experienced a peak demand of over 12 gigawatts, the highest since 2013, as electrification of transportation and heating, data center expansion, and economic growth outpace the impact of distributed generation like rooftop solar. ISO New England's 2050 transmission study and recent RFPs for longer-term transmission solutions signal that this is not a temporary phenomenon but a structural shift requiring tens of billions in infrastructure investment.

Eversource's competitive positioning within this trend is formidable. The company controls critical transmission corridors, strategic interconnection sites, and deep regulatory relationships across three states. Its $24.2 billion five-year capital plan (2025-2029) represents a 10% increase over the previous plan, with nearly $16.2 billion allocated to electric and natural gas distribution networks and $6.8 billion to electric transmission. This investment is not speculative; it is driven by known load growth, aging infrastructure replacement needs, and state-mandated clean energy goals. The plan implies an 8% rate base growth from 2023 through 2029, providing visible earnings growth that few utilities can match.

Technology, Infrastructure, and Strategic Differentiation

Eversource's competitive moat rests on three pillars: its strategic infrastructure assets, its regulatory relationships, and its execution capability on complex grid modernization projects. The company's technology and infrastructure investments are not about cutting-edge innovation but about building the physical foundation that enables the energy transition.

The Greater Cambridge Energy Project exemplifies this approach. This $1.84 billion initiative—approved by the Massachusetts Energy Facilities Siting Board in June 2024—will construct the first fully underground electrical substation in the United States, located 105 feet beneath Kendall Square. The 35,000-square-foot facility will house eight new 115-kV transmission lines and address the region's surging electric demand from biotech labs, data centers, and commercial electrification. Of the total cost, $1.38 billion is allocated to transmission, earning the higher FERC-regulated returns that boost overall corporate profitability.

This is significant because underground substations solve a critical urban constraint: the inability to expand above-ground infrastructure in dense, high-value markets. By going underground, Eversource can serve load growth that would otherwise be constrained by land availability and community opposition. This creates a monopoly-like position in one of the nation's most valuable commercial real estate markets. The project will provide enough energy to replace 50% of Cambridge's commercial gas demand with electricity and electrify all residential heating, directly supporting Massachusetts' decarbonization goals while earning regulated returns on a $1.84 billion investment.

The Mystic site acquisition in Everett, Massachusetts, announced in December 2024, represents another strategic masterstroke. The 26-acre property, with existing infrastructure and waterfront access, positions Eversource to create a premier energy interconnection hub for offshore wind, transmission upgrades, and future generation resources. As CEO Joe Nolan stated, "This facility stands out as one of the most promising multi-use interconnection points for a wide range of energy resources in New England." The site could support multiple billions in future transmission investment beyond the current five-year plan, creating a multi-decade growth platform.

These infrastructure investments are complemented by grid modernization programs like the Advanced Metering Infrastructure (AMI) deployment in Massachusetts. The communication network in Western Massachusetts is substantially complete, with meter installation beginning in July 2025 and full rollout expected over three years. AMI enables real-time demand response, outage detection, and dynamic pricing—capabilities that are essential for managing the variable loads from electric vehicles and heat pumps. While the capital cost is significant, the operational savings and demand management benefits improve long-term returns.

The strategic differentiation lies in Eversource's ability to execute these complex projects while maintaining regulatory relationships. The company's track record of completing major infrastructure on time and within budget—evidenced by the Revolution Wind onshore substation progressing ahead of schedule—builds regulatory credibility that translates into more constructive rate case outcomes. This execution capability is a moat that smaller utilities like Unitil (UTL) cannot replicate and that even large peers like National Grid (NGG) struggle to match in the dense Northeast corridor.

Financial Performance: Evidence of Strategic Execution

Eversource's financial results provide compelling evidence that the pure-play strategy is working. For the nine months ended September 30, 2025, non-GAAP earnings reached $1.35 billion, or $3.64 per share, compared with $1.26 billion, or $3.56 per share, in the prior year. This growth occurred despite a $75 million after-tax charge ($0.20 per share) related to the remaining offshore wind contingent liability, demonstrating the underlying strength of the core utility operations.

The segment performance reveals the drivers of this growth. Electric Distribution generated $7.66 billion in operating revenue for the nine-month period, up 11.68% year-over-year, with net income increasing $50.3 million to $571.6 million. This growth was powered by base distribution rate increases at PSNH (effective August 1, 2024, and August 1, 2025) and NSTAR Electric (effective January 1, 2025), plus capital tracking mechanisms that ensure timely recovery of infrastructure investments. The PSNH rate case decision in July 2025 contributed additional earnings, partially offset by higher property tax, interest, depreciation, and O&M expenses.

Electric Transmission delivered even stronger results, with operating revenue up 6.99% to $1.69 billion and net income increasing $52.4 million to $593 million. The higher transmission rate base, resulting from continued infrastructure investment, drives this growth. Transmission investments earn higher returns and are less exposed to regulatory lag than distribution investments, making this segment a key profit driver. The $774.3 million in transmission capex for the nine-month period, while down from the prior year due to project timing, supports future rate base growth.

Natural Gas Distribution showed robust revenue growth of 22.59% to $1.86 billion, with net income increasing $49.5 million to $236.9 million. Base distribution rate increases at EGMA and NSTAR Gas (effective November 1, 2024) and capital tracking mechanisms drove this performance. The Yankee Gas rate case resulted in an $82.2 million distribution rate increase effective November 1, 2025, with a 9.32% authorized ROE and 53% common equity ratio—constructive terms that support earnings growth.

The "Other" segment, which includes parent company debt and corporate costs, showed dramatic improvement. Losses decreased by $380.1 million in the first nine months of 2025, primarily due to the absence of the $524 million after-tax charge from the 2024 offshore wind sale. Excluding these charges, the segment's performance reflects higher interest expense from the absence of capitalized interest after the offshore wind sale and higher short-term debt costs, partially offset by tax benefits from state credits.

Cash flow performance is the most compelling evidence of strategic success. Cash provided by operating activities surged to $3.2 billion in the first nine months of 2025, up from $1.52 billion in the prior year. This 110% improvement was driven by enhanced regulatory recoveries, including $451.5 million from CLP's non-bypassable FMCC and $136.8 million from the SBC mechanism, plus $107.8 million in Connecticut state bond proceeds. Critically, cash payments for storm costs decreased by $262.2 million, and favorable timing of receivables and payables contributed to the strength.

This cash flow improvement transforms Eversource's financial flexibility. The company issued $2.04 billion of new long-term debt in the first nine months while repaying $750 million, proactively managing its maturity profile. The parent company issued $600 million of debt to prefund a 2026 maturity, despite earlier guidance suggesting no parent debt issuance. This demonstrates management's confidence in cash flow sustainability and commitment to maintaining investment-grade metrics.

The FFO-to-debt ratio, a critical credit metric, is expected to exceed 13% by Q3 2025, up over 300 basis points from December 2024. This improvement reflects both higher cash flows and disciplined debt management. The Aquarion sale, if completed, would add approximately 100 basis points to this ratio by reducing parent debt by $1.6 billion. However, PURA's rejection of the sale forces Eversource to pursue a more dilutive equity path, having already issued $465 million under its ATM program in 2025.

Outlook, Guidance, and Execution Risk

Management has narrowed 2025 non-GAAP EPS guidance to $4.72-$4.80 per share, up from the prior $4.67-$4.82 range, and reaffirmed long-term EPS growth of 5-7% through 2029 off a 2024 base of $4.57. This guidance implies 2026 EPS of approximately $5.02-$5.07, representing 5.7% growth. Bank of America analyst Ross Fowler is more optimistic, projecting $5.05 in 2026, $5.40 in 2027, and $5.70 in 2028, reflecting confidence in the capital plan execution and regulatory recovery.

The $24.2 billion capital plan for 2025-2029 is the engine of this growth. The 10% increase from the prior plan is driven primarily by electric transmission and distribution investments in Massachusetts, where load growth is most acute. Management expects this investment to drive 8% rate base growth from 2023-2029, supporting the EPS growth target. The plan includes nearly $2 billion for aging infrastructure replacement, $1.5 billion for underground cable programs, $1 billion for substation development, and $500 million for clean energy integration.

Execution risk centers on three factors: regulatory approval, construction management, and cost control. The Massachusetts regulatory environment has been constructive, approving the Greater Cambridge project and supporting transmission investments. However, Connecticut remains challenging. While Senate Bill 4, enacted July 1, 2025, authorizes storm cost securitization and clarifies PURA commissioner requirements, the Aquarion sale rejection demonstrates that regulatory risk is not fully resolved.

Management's commentary on the Connecticut court decision clarifying prudency standards is encouraging. The ruling that PURA "cannot apply hindsight in the rate recovery process" and that "prudency needs to be set at the time management makes the investment decision" provides a stronger foundation for future rate cases. This reduces the risk that regulators will deny recovery for investments that were prudent when made but face cost overruns or changing circumstances years later. For the AMI program in Connecticut, this legal clarity could accelerate approval by reducing regulatory uncertainty.

The offshore wind contingent liability remains a watch item. Eversource recognized a $284 million pre-tax charge in Q3 2025, bringing the total liability to $507.7 million. This reflects known cost increases for Revolution Wind, including vessel damage, insurance, tariffs, and a stop-work order. Management warns that "it is reasonably possible" that additional cost overruns or delays could result in "material" increases to the liability. While the company has $209 million in offsetting tax benefits, the contingent liability represents a potential drag on future earnings if project costs escalate further.

Risks and Asymmetries: The Connecticut Conundrum

The most material risk to Eversource's investment thesis is the Connecticut regulatory environment. PURA's unanimous rejection of the Aquarion sale, citing failure to meet standards for managerial responsibility and governance, has profound implications. As Scotiabank analyst Andrew Weisel stated, "The unanimous rejection from PURA reinforces our view that CT remains an extremely challenging regulatory environment, possibly still the toughest in the country." Jefferies analysts similarly concluded that "PURA's decision largely dispels a key tenet of the bull thesis related to improving Connecticut regulatory environment."

This directly impacts capital deployment and balance sheet flexibility. The $2.4 billion Aquarion sale would have reduced parent debt by $1.6 billion and contributed 100 basis points to the FFO-to-debt ratio. Without it, Eversource must issue more equity—already $465 million in 2025 with the majority of $1.2 billion in forecasted needs still to come. This dilutes shareholders and increases the cost of capital, reducing the attractiveness of future investments.

The storm cost recovery issue compounds this risk. With approximately $2 billion in deferred storm costs on the balance sheet, Eversource is pursuing prudency reviews and securitization under SB4. While the new law authorizes securitization for storms from 2018-2025, the process is subject to PURA approval. Any denial or reduction of recovery would impair cash flows and weaken credit metrics. The company's history of proactive supply chain management during COVID-19 demonstrates execution capability, but regulatory recovery is outside management's control.

FERC ROE complaints represent another asymmetric risk. Four pending complaints against New England transmission owners create uncertainty about future transmission returns. Eversource acknowledges "significant uncertainty regarding the applicability of the FERC order in the MISO transmission owners two complaint cases to the NETOs pending four complaint cases" and states it "cannot reasonably estimate any potential range of loss." Given that transmission investments represent $6.8 billion of the capital plan, any reduction in allowed ROE would materially impact earnings growth.

Tariff impacts, while manageable, could pressure capital costs. Eversource estimates potential cost increases of 3-6% on capital projects from tariffs, though O&M impact is expected to be minimal. The company has mitigated risk through supply chain diversification and minimal direct China exposure. However, in an inflationary environment, any cost escalation not recovered in rates could compress margins.

Valuation Context: Pricing Regulatory Risk

At $66.31 per share, Eversource trades at 18.3 times trailing earnings and 6.48 times operating cash flow, with a dividend yield of 4.52%. The enterprise value of $54.46 billion represents 4.14 times revenue and 11.87 times EBITDA. These multiples are in line with or slightly below utility peers, reflecting the regulatory overhang.

Comparative metrics illustrate the valuation gap. National Grid trades at 19.15 times earnings with a 4.12% dividend yield and higher operating margins (24.15% vs. ES's 22.49%). NiSource (NI) trades at 22.24 times earnings with a lower yield (2.60%) but higher ROE (9.07% vs. ES's 8.61%). Unitil trades at 17.53 times earnings with a 3.60% yield but significantly lower scale. Algonquin Power (AQN) trades at 85.43 times earnings, reflecting its renewables focus and recent challenges.

Bank of America analyst Ross Fowler raised Eversource's price target to $85 from $73 based on a sum-of-the-parts valuation, applying 2027 peer P/E multiples of 16.4x for electric and 16.1x for gas, adjusted upward for growth potential. This implies a 28% upside from current levels. The analyst's model suggests ES trades at a 26% discount to fair value, supporting a projected 13.5%-16% annual total return over five years.

The valuation asymmetry is clear. If Connecticut regulatory reforms succeed and the Aquarion sale eventually closes (perhaps under revised terms), the stock could re-rate toward peer multiples, offering 25-30% upside plus the 4.5% dividend yield. Conversely, if PURA continues to deny cost recovery and blocks capital deployment, earnings growth could stall at the low end of the 5-7% range, compressing the P/E multiple and creating 15-20% downside risk.

The company's balance sheet provides some cushion. With $259 million in cash, $1.13 billion in commercial paper capacity, and proactive debt management, liquidity is strong. The debt-to-equity ratio of 1.84x is manageable for a capital-intensive utility, though higher than National Grid's 1.23x. The payout ratio of 82.11% is elevated but supported by improving cash flows and minimal cash tax payments through 2028 due to tax credits and loss carryforwards from the offshore wind sales.

Conclusion: A Utility at an Inflection Point

Eversource Energy has successfully executed a strategic transformation that positions it as a pure-play regulated utility poised to capture accelerating load growth from electrification and data center expansion. The company's $24.2 billion capital plan, strong operating cash flow improvement, and constructive regulatory outcomes in Massachusetts and New Hampshire support a credible 5-7% EPS growth trajectory through 2029.

However, the investment thesis faces a critical test in Connecticut. PURA's rejection of the Aquarion sale and the state's challenging regulatory history create a material overhang that prevents the stock from trading at peer valuations. While Senate Bill 4 and recent court decisions clarifying prudency standards offer hope for improvement, the proof will be in PURA's actions on storm cost recovery and future rate cases.

For investors, the risk/reward is asymmetric. Success in navigating Connecticut's regulatory environment could unlock 25-30% upside as the stock re-rates toward peer multiples. Failure could compress earnings growth and multiples, creating 15-20% downside. The 4.5% dividend yield provides income while waiting for regulatory clarity, but the core investment decision hinges on whether Eversource can convert its strategic positioning into earned returns in its most important state.

The key variables to monitor are: (1) PURA's November 19, 2025 final decision on the Aquarion sale and subsequent regulatory engagement; (2) progress on Connecticut storm cost securitization under SB4; and (3) the outcome of FERC ROE complaints that could impact transmission returns. How these resolve will determine whether Eversource's pure-play transformation delivers the promised shareholder value or remains trapped by regulatory constraints.