Hydro One (H) AI Stock Analysis

• Market Cap: C$29.03B
• Dividend Yield: 2.4%
• Average Volume (3M): 1.41M
• Price to Earnings (P/E): 25.2
• Beta (1Y): 0.43
• Revenue Growth: 8.16%
• EPS Growth: 6.48%
• Country: CA
• Employees: 7,261
• Sector: Utilities
• Sector Strength: 84
• Industry: Regulated Electric
• EPS (TTM): 0.33
• Shares Outstanding: 599,435,670
• 10 Day Avg. Volume: 1,399,308
• 30 Day Avg. Volume: 1,409,266
• PEG Ratio: N/A
• Price to Book (P/B): N/A
• Price to Sales (P/S): 3.46
• Price to Cash Flow (P/CF): 10.40
• P/FCF Ratio: 0.00
• Enterprise Value/Market Cap: N/A
• Enterprise Value/Revenue: N/A
• Enterprise Value/Gross Profit: N/A
• Enterprise Value/Ebitda: N/A
• 1Y Price Target: C$47.17
• Price Target Upside: -9.77% Downside
• Rating Consensus: Hold
• Number of Analyst Covering: 6

Hydro One demonstrates solid financial performance with stable revenue growth and operational efficiency, but the decline in EBIT margins and negative free cash flow due to high capital expenditures warrant attention. Technical analysis shows positive momentum, though valuation metrics indicate the stock might be overvalued. The earnings call highlighted strong operational achievements and forward guidance, although tariff uncertainties and rising costs pose challenges.

Positive Factors

Earnings Growth

Hydro One's EPS growth is expected to continue outpacing its rate base through 2027.

Financial Strategy

Newly appointed CFRO Harry Taylor reaffirmed the 5-7% EPS guidance through 2027, that no equity is required during that timeframe, and that the financial strategy will be unchanged.

Long-term Investment

Positive on the shares long term given the visible long-dated capex program, high-quality asset base, and strong balance sheet.

Negative Factors

Market Performance

The significant share outperformance vs. S&P/TSX Utilities Index, the premium P/E valuation of 21x, and the relative return to the unchanged $42 target drive the rating to Market Perform from Outperform.

Regulatory Uncertainty

There is uncertainty around the outcome of Hydro One's cost of capital review with the OEB, which could alter its ROE/equity layer.

Valuation

Hydro One shares are currently trading at a 35% premium to peers and are fully valued.

Hydro One Business Overview & Revenue Model

Company Description

Hydro One Limited is a leading electricity transmission and distribution service provider in Ontario, Canada. The company operates in the utilities sector, primarily focusing on delivering electricity safely and reliably to homes and businesses. Hydro One owns and operates an extensive network of transmission lines and distribution systems, which are critical to the electricity infrastructure in Ontario.

How the Company Makes Money

Hydro One makes money primarily through the transmission and distribution of electricity. The company generates revenue by charging regulated rates to customers for the delivery of electricity. These rates are overseen and approved by the Ontario Energy Board (OEB) to ensure fair pricing. Hydro One's revenue streams are largely stable and predictable due to the regulatory environment, which allows for cost recovery and a return on equity. Additionally, the company may engage in partnerships or agreements with other utilities or energy providers to enhance its service offerings and operational efficiency. However, its core income is derived from the regulated transmission and distribution services it provides.

Hydro One Financial Statement Overview

Summary

Hydro One showcases overall financial stability and consistent revenue growth, supported by strong operational cash flows. Despite an increase in leverage and negative free cash flow due to high capital expenditures, the company's profitability and return metrics remain robust. The balance sheet reflects a solid equity base, which balances the increased debt levels. Continued monitoring of cash flow and EBIT margins would be prudent to ensure sustained financial health.

Income Statement

Hydro One has demonstrated solid revenue growth, increasing from CAD 6.48 billion in 2019 to CAD 8.48 billion in 2024. The gross profit margin has been stable, averaging around 36% over the years, indicating strong cost management. However, EBIT margins have declined to 0% in 2024, which could be a concern for operational efficiency. The net profit margin has been consistent, hovering around 13%-15%, reflecting stable profitability.

Balance Sheet

The company's debt-to-equity ratio increased slightly from 1.30 in 2019 to 1.47 in 2024, suggesting a moderate increase in leverage. Return on Equity (ROE) remains healthy, around 9%-10%, indicating efficient utilization of equity capital. The equity ratio has been stable at approximately 30%, providing a strong buffer against liabilities. Overall, the balance sheet reflects a stable financial position with manageable leverage.

Cash Flow

Hydro One's operating cash flow has been on an upward trend, reaching CAD 2.53 billion in 2024. However, free cash flow has been negative in recent years due to high capital expenditures, indicating significant reinvestment into the business. The operating cash flow to net income ratio remains strong, showing the company's ability to convert profits into cash. While the negative free cash flow raises concerns, it is typical for utilities investing heavily in infrastructure.

Breakdown
Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Income Statement		Total Revenue
8.48B	7.84B	7.78B	7.22B	7.29B
	Gross Profit
3.03B	2.84B	2.80B	2.53B	2.37B
	EBIT
0.00	1.84B	1.96B	1.72B	1.57B
	EBITDA
2.89B	2.69B	2.81B	2.52B	2.36B
	Net Income Common Stockholders
1.16B	1.08B	1.05B	965.00M	1.79B
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
716.00M	79.00M	530.00M	540.00M	757.00M
	Total Assets
36.68B	32.85B	31.46B	30.38B	30.29B
	Total Debt
17.73B	15.74B	15.19B	14.72B	14.41B
	Net Debt
17.02B	15.66B	14.66B	14.19B	13.66B
	Total Liabilities
24.51B	21.09B	20.07B	19.41B	19.67B
	Stockholders Equity
12.09B	11.68B	11.31B	10.89B	10.53B
Cash Flow		Free Cash Flow
-274.00M	-64.00M	174.00M	78.00M	186.00M
	Operating Cash Flow
2.53B	2.41B	2.26B	2.15B	2.03B
	Investing Cash Flow
-3.13B	-2.69B	-2.07B	-2.06B	-1.98B
	Financing Cash Flow
1.23B	-172.00M	-197.00M	-303.00M	674.00M

Hydro One Technical Analysis

• Technical Analysis Sentiment: Positive
• Last Price: 52.28
• 50DMA: Positive
• 100DMA: Positive
• 200DMA: Positive
• MACD: Negative
• RSI: Neutral
• STOCH: Negative

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For TSE:H, the sentiment is Positive. The current price of 52.28 is above the 20-day moving average (MA) of 50.34, above the 50-day MA of 48.65, and above the 200-day MA of 45.33, indicating a bullish trend. The MACD of 1.17 indicates Negative momentum. The RSI at 67.08 is Neutral, neither overbought nor oversold. The STOCH value of 80.77 is Negative, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for TSE:H.

Hydro One Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
CPX	78 Outperform	C$8.26B	10.35	15.24%	4.82%	-27.55%	-12.05%
H	74 Outperform	C$29.03B	25.16	9.73%	2.40%	8.16%	6.48%
FTS	73 Outperform	$33.65B	20.68	7.47%	3.57%	-0.08%	4.76%
CU	70 Neutral	C$7.71B	25.32	6.93%	4.83%	-1.42%	-36.31%
EMA	69 Neutral	$18.09B	35.55	4.50%	4.72%	7.16%	-52.28%
Sector *	63 Neutral	$8.48B	11.84	5.32%	4.35%	3.04%	-11.46%
BEP.UN	55 Neutral	$20.92B	―	-4.87%	6.29%	22.01%	-183.73%

Hydro One Corporate Events

Hydro One Announces Leadership Change with Chair Resignation

Hydro One Limited announced the resignation of Tim Hodgson as Chair of the Board of Directors following his successful run in the federal election. Susan Wolburgh Jenah will serve as Interim Chair while the Board searches for a new Chair. This leadership change comes as Hydro One continues to focus on its role as a major electricity provider in Ontario, maintaining its commitment to community and economic support through significant investments in infrastructure and services.

Spark’s Take on TSE:H Stock

According to Spark, TipRanks’ AI Analyst, TSE:H is a Outperform.

Hydro One demonstrates solid financial performance with stable revenue growth and operational efficiency, but the decline in EBIT margins and negative free cash flow due to high capital expenditures warrant attention. Technical analysis shows positive momentum, though valuation metrics indicate the stock might be overvalued. The earnings call highlighted strong operational achievements and forward guidance, although tariff uncertainties and rising costs pose challenges.

To see Spark’s full report on TSE:H stock, click here.

Hydro One Appoints Susan Wolburgh Jenah as Interim Chair

Hydro One Limited has appointed Susan Wolburgh Jenah as the Interim Chair of the Board of Directors, following Timothy Hodgson’s leave of absence to participate in the federal election. Susan Wolburgh Jenah brings extensive experience as a senior regulator and corporate director, which is expected to provide stability and strategic guidance during this transitional period for Hydro One.

Hydro One Achieves Strong Q4 Earnings and Advances Infrastructure Initiatives

Hydro One reported a fourth-quarter increase in basic earnings per share to $0.33, attributed to higher revenues from approved transmission and distribution rates and reduced operational expenses. The company continues to make strategic investments in infrastructure projects and has enhanced its earnings growth guidance, reflecting its commitment to cost optimization and sustainable development, alongside receiving recognition for employee safety.