Hydro One Ltd (HRNNF)

Price$38.46Cached quoteAs of 2026-09-05 06:30 UTC

AI: Fair-priced

Price checkShares look fairly priced because investors already pay a high price for each dollar of profit.

Using the Toronto-traded shares to align the market value with Canadian-dollar accounts, trailing earnings per share are about C$2.36: 2025 earnings of C$2.23, minus first-half 2025 earnings of C$1.14, plus first-half 2026 earnings of C$1.27. That puts the shares at about 23 times trailing earnings, versus roughly 20 to 25 times in recent years. The dividend yield is about 2.6%. This price already assumes dependable profit growth and leaves little margin for disappointment, but it is not far outside Hydro One’s established valuation range.

Big pictureProfit and operating cash have climbed steadily, while regulated electricity makes results less tied to economic booms and busts.

From 2021 through 2025, revenue rose from C$7.23 billion to C$9.04 billion, operating income from C$1.61 billion to C$2.24 billion, and earnings per share from C$1.61 to C$2.23. Operating cash flow, meaning cash generated by normal business operations, increased from C$2.15 billion to C$2.70 billion. First-half 2026 earnings per share reached C$1.27 versus C$1.14 a year earlier. Because electricity transmission and distribution rates are largely regulator-approved, results are generally steadier than businesses exposed directly to commodity prices or discretionary spending.

Business strengthThe balance sheet supports growth, but rising debt and heavy investment reduce the margin of safety.

Debt is the main constraint. Total debt reached C$19.12 billion in 2025, while cash was C$0.55 billion; net debt was about 5.8 times EBITDA, a cash-earnings measure before interest, tax, depreciation and amortization. Capital spending of C$2.97 billion also exceeded C$2.70 billion of operating cash flow, leaving simple free cash flow—cash left after running and investing in the business—negative by about C$275 million. Dividends consumed about 58% of net income, while shares outstanding rose only about 0.3% from 2021, so dilution has been minimal.

What could change the storyFaster regulated project growth could lift value; expensive funding or tougher rate decisions could cut it.

The bull case is more regulated assets earning approved returns: recent filings include roughly C$1.9 billion for Northeast, C$1.2 billion for Longwood to Lakeshore, C$430 million for Durham Kawartha and C$100 million for Orléans. The bear case is financing and regulatory friction. Second-quarter financing charges rose because long-term debt increased, and the regulator denied about C$69 million of extra revenue recovery tied to 2025 storm costs. The thesis strengthens if earnings keep growing while debt stays near today’s earnings capacity; it weakens if borrowing grows faster than profit or more costs are denied recovery.

AI: News

Second-quarter earnings riseSecond-quarter profit rose on approved rates and stronger demand, but borrowing costs also increased.

On August 12, Hydro One reported C$370 million of second-quarter net income versus C$327 million a year earlier, with earnings per share rising to C$0.62 from C$0.54. First-half earnings per share reached C$1.27 versus C$1.14. Quarterly operating cash flow improved to C$686 million, while capital investment was C$812 million. Toronto-listed shares rose about 1.3% that day, although timing alone does not prove the results caused the move.

Transmission pipeline expandsHydro One filed several large transmission projects that could expand future regulated earnings if approved.

From May through June, Hydro One advanced projects including the roughly C$1.9 billion Northeast line, C$1.2 billion Longwood to Lakeshore line, C$430 million Durham Kawartha line and C$100 million Orléans reinforcement. Most are targeted for service around 2029 or 2030 and still require regulatory approval. If completed, they can expand the rate base, meaning the regulated asset value on which utilities may earn approved returns, but they also increase near-term funding needs.

U.S. debt market entryA large U.S. bond sale broadened funding sources while highlighting Hydro One’s growing financing needs.

On May 20, Hydro One priced US$1.0 billion of five-year senior notes at a 4.75% coupon, with a Canadian-dollar fixed-rate equivalent of 3.835%. The proceeds were intended to repay maturing long-term debt, short-term borrowing and support general corporate needs. The SEC term sheet listed expected ratings of A3 from Moody’s and A from S&P, both stable. Broader funding access lowers refinancing concentration, but the transaction also underscores how heavily the capital program depends on debt markets.

Storm recovery deniedA regulator refused storm-cost recovery, showing that unusual spending is not automatically passed to customers.

On April 7, the Ontario Energy Board denied Hydro One’s request tied to the severe March 2025 ice storm. The company described roughly C$223 million of storm-related costs, while its first-quarter filing said the denied incremental revenue requirement was about C$69 million. The distinction matters because capital spending does not translate dollar-for-dollar into customer rates. The ruling is a concrete reminder that regulatory decisions can reduce expected cash recovery even in a largely regulated utility.

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Financial statements

	2025	2024	2023	2022	2021	2020	2019	2018	2017
Revenue	$9.04B	$8.48B	$7.84B	$7.78B	$7.22B	$7.29B	$6.48B	$6.15B	$5.99B
Gross profit	$4.55B	$4.34B	$4.19B	$4.06B	$3.65B	$3.44B	$3.37B	$3.25B	$3.12B
Gross margin	50.38%	51.17%	53.44%	52.13%	50.46%	47.13%	51.99%	52.86%	52.00%
Operating expenses	$6.80B	$6.52B	$6.00B	$5.95B	$5.61B	$5.81B	$5.17B	$4.84B	$4.76B
Operating income	$2.24B	$1.97B	$1.84B	$1.83B	$1.61B	$1.48B	$1.31B	$1.31B	$1.23B
Operating margin	24.75%	23.18%	23.48%	23.55%	22.31%	20.33%	20.22%	21.28%	20.57%
EBITDA	$3.20B	$2.89B	$2.71B	$2.66B	$2.43B	$2.27B	$2.09B	$2.06B	$1.96B
EBITDA margin	35.44%	34.03%	34.52%	34.23%	33.59%	31.07%	32.21%	33.43%	32.70%
Net income	$1.35B	$1.17B	$1.09B	$1.06B	$973.0M	$1.80B	$802.0M	−$65.0M	$682.0M
Net profit margin	14.92%	13.73%	13.95%	13.60%	13.47%	24.64%	12.38%	−1.06%	11.39%
Basic EPSper basic share	CA$2.23	CA$1.93	CA$1.81	CA$1.75	CA$1.61	CA$2.96	CA$1.30	-CA$0.15	CA$1.11
Diluted EPSper diluted share	CA$2.23	CA$1.92	CA$1.81	CA$1.75	CA$1.61	CA$2.95	CA$1.30	-CA$0.15	CA$1.10