What is FTS.TO's Intrinsic value?

Fortis Inc (FTS.TO) Intrinsic Value Analysis

Executive Summary

As of May 27, 2025, Fortis Inc's estimated intrinsic value ranges from $55.84 to $87.95 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $87.95 +32.6%
Discounted Cash Flow (5Y) $78.49 +18.3%
Dividend Discount Model (Multi-Stage) $64.53 -2.7%
Dividend Discount Model (Stable) $55.84 -15.8%
Earnings Power Value $83.86 +26.4%

Is Fortis Inc (FTS.TO) undervalued or overvalued?

With the current market price at $66.34, the stock appears to be moderately undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Fortis Inc's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.2% 3.7%
Equity market risk premium 5.1% 6.1%
Adjusted beta 0.45 0.48
Cost of equity 5.5% 7.1%
Cost of debt 4.2% 6.8%
Tax rate 15.3% 16.0%
Debt/Equity ratio 1.01 1.01
After-tax WACC 4.5% 6.4%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 5.4% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $11,508 (FY12-2024) to $17,598 (FY12-2034)
  • Net profit margin expansion from 16% to 16%
  • Capital expenditures maintained at approximately 40% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $78 $72,810M 80.9%
10-Year Growth $88 $77,551M 66.0%
5-Year EBITDA $42 $54,651M 74.6%
10-Year EBITDA $61 $64,160M 58.9%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 48.7%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 6.3%
  • Long-term growth rate: 1.0%
  • Fair value: $64.53 (-2.7% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 7.1% (Low) to 5.5% (High)
  • Long-term growth rate: 0.5% (Low) to 1.5% (High)
  • Fair value range: $36 to $76
  • Selected fair value: $55.84 (-15.8% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $3,994M
Discount Rate (WACC) 6.4% - 4.5%
Enterprise Value $62,616M - $88,389M
Net Debt $33,435M
Equity Value $29,181M - $54,954M
Outstanding Shares 502M
Fair Value $58 - $110
Selected Fair Value $83.86

Key Financial Metrics

Metric Value
Market Capitalization $33278M
Enterprise Value $66713M
Trailing P/E 19.81
Forward P/E 17.40
Trailing EV/EBITDA 5.85
Current Dividend Yield 245.81%
Dividend Growth Rate (5Y) -0.98%
Debt-to-Equity Ratio 1.01

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 30% $26.38
Discounted Cash Flow (5Y) 25% $19.62
Dividend Discount Model (Multi-Stage) 20% $12.91
Dividend Discount Model (Stable) 15% $8.38
Earnings Power Value 10% $8.39
Weighted Average 100% $75.68

Investment Conclusion

Based on our comprehensive valuation analysis, Fortis Inc's weighted average intrinsic value is $75.68, which is approximately 14.1% above the current market price of $66.34.

Key investment considerations:

  • Strong projected earnings growth (16% to 16% margin)
  • Consistent cash flow generation

Given these factors, we believe Fortis Inc is currently moderately undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.