On Friday, UBS initiated coverage on Hydro One Ltd. (H:CN) (OTC: HRNNF), the Canadian electricity transmission and distribution utility, assigning a Neutral rating and setting a price target of C$40.00. UBS's stance reflects a view that the current market valuation already accounts for Hydro One's growth potential and the benefits of a supportive regulatory environment.
Hydro One's earnings are projected to increase by approximately 7% over the next five years, according to UBS. This growth estimate could potentially rise to a higher single-digit earnings per share (EPS) growth rate towards the end of the decade. The utility company's publicly stated EPS growth rate of 5%-7% does not include possible gains from three specific areas: broadband expansion, consolidation of Local Distribution Companies (LDCs), and the development of seven out of nine planned transmission line projects.
The inclusion of these factors could enhance the company's growth outlook to a range of 6%-8%, as per UBS's analysis. The firm's assessment suggests that if these elements were factored into financial forecasts, Hydro One's growth trajectory might be more robust than currently anticipated.
UBS's initiation of coverage comes at a time when Hydro One continues to play a significant role in the Canadian utility sector, with its operations being critical to the transmission and distribution of electricity in Ontario.
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