As of June 29, 2025, Hydro One Ltd's estimated intrinsic value ranges from $38.74 to $80.14 per share, depending on the valuation methodology applied.
| Valuation Method | Fair Value (USD) | Implied Upside/Downside |
|---|---|---|
| Discounted Cash Flow (10Y) | $80.14 | +65.0% |
| Discounted Cash Flow (5Y) | $62.08 | +27.8% |
| Dividend Discount Model (Multi-Stage) | $47.52 | -2.1% |
| Dividend Discount Model (Stable) | $49.99 | +2.9% |
| Earnings Power Value | $38.74 | -20.2% |
Is Hydro One Ltd (H.TO) undervalued or overvalued?
With the current market price at $48.56, the stock appears to be significantly undervalued.
Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Hydro One Ltd's intrinsic value, including:
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 | 0.44 | 0.46 |
| Cost of equity | 5.4% | 7.0% |
| Cost of debt | 4.0% | 4.5% |
| Tax rate | 14.9% | 17.8% |
| Debt/Equity ratio | 0.61 | 0.61 |
| After-tax WACC | 4.7% | 5.7% |
Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:
| DCF Model | Fair Value | Enterprise Value | % from Terminal Value |
|---|---|---|---|
| 5-Year Growth | $62 | $54,847M | 86.5% |
| 10-Year Growth | $80 | $65,681M | 76.1% |
| 5-Year EBITDA | $27 | $33,905M | 78.2% |
| 10-Year EBITDA | $44 | $43,829M | 64.2% |
The DDM values a company based on its expected future dividend payments. We used two approaches:
EPV assesses a company's value based on its current normalized earnings power, assuming no growth.
| EPV Component | Value |
|---|---|
| Normalized Earnings | $2,098M |
| Discount Rate (WACC) | 5.7% - 4.7% |
| Enterprise Value | $36,575M - $45,120M |
| Net Debt | $17,615M |
| Equity Value | $18,960M - $27,505M |
| Outstanding Shares | 600M |
| Fair Value | $32 - $46 |
| Selected Fair Value | $38.74 |
| Metric | Value |
|---|---|
| Market Capitalization | $29125M |
| Enterprise Value | $46740M |
| Trailing P/E | 23.85 |
| Forward P/E | 23.56 |
| Trailing EV/EBITDA | 6.20 |
| Current Dividend Yield | 258.54% |
| Dividend Growth Rate (5Y) | 4.76% |
| Debt-to-Equity Ratio | 0.61 |
To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:
| Valuation Method | Weight | Weighted Value |
|---|---|---|
| Discounted Cash Flow (10Y) | 30% | $24.04 |
| Discounted Cash Flow (5Y) | 25% | $15.52 |
| Dividend Discount Model (Multi-Stage) | 20% | $9.50 |
| Dividend Discount Model (Stable) | 15% | $7.50 |
| Earnings Power Value | 10% | $3.87 |
| Weighted Average | 100% | $60.44 |
Based on our comprehensive valuation analysis, Hydro One Ltd's weighted average intrinsic value is $60.44, which is approximately 24.5% above the current market price of $48.56.
Key investment considerations:
Given these factors, we believe Hydro One Ltd is currently significantly undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.