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Using the 2 Stage Free Cash Flow to Equity, Eversource Energy fair value estimate is US$90.70
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Eversource Energy is estimated to be 28% undervalued based on current share price of US$65.41
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The US$69.44 analyst price target for ES is 23% less than our estimate of fair value
How far off is Eversource Energy (NYSE:ES) from its intrinsic value? Using the most recent financial data, we’ll take a look at whether the stock is fairly priced by projecting its future cash flows and then discounting them to today’s value. We will use the Discounted Cash Flow (DCF) model on this occasion. Don’t get put off by the jargon, the math behind it is actually quite straightforward.
We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.
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We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second ‘steady growth’ period. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren’t available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we discount the value of these future cash flows to their estimated value in today’s dollars:
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2026
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2027
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2028
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2029
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2030
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2031
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2032
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2033
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2034
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2035
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Levered FCF ($, Millions)
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US$210.5m
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US$443.5m
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US$650.9m
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US$869.9m
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US$1.08b
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US$1.28b
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US$1.45b
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US$1.60b
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US$1.73b
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US$1.84b
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Growth Rate Estimate Source
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Analyst x2
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Analyst x2
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Est @ 46.79%
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Est @ 33.64%
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Est @ 24.43%
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Est @ 17.98%
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Est @ 13.47%
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Est @ 10.31%
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Est @ 8.10%
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Est @ 6.55%
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Present Value ($, Millions) Discounted @ 6.7%
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US$197
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US$389
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US$535
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US$670
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US$782
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US$864
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US$919
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US$949
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US$962
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US$960
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(“Est” = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$7.2b
The second stage is also known as Terminal Value, this is the business’s cash flow after the first stage. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.9%. We discount the terminal cash flows to today’s value at a cost of equity of 6.7%.
Terminal Value (TV)= FCF2035 × (1 + g) ÷ (r – g) = US$1.8b× (1 + 2.9%) ÷ (6.7%– 2.9%) = US$50b
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$50b÷ ( 1 + 6.7%)10= US$26b
The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is US$33b. In the final step we divide the equity value by the number of shares outstanding. Relative to the current share price of US$65.4, the company appears a touch undervalued at a 28% discount to where the stock price trades currently. Remember though, that this is just an approximate valuation, and like any complex formula – garbage in, garbage out.
NYSE:ES Discounted Cash Flow July 19th 2025
We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. Part of investing is coming up with your own evaluation of a company’s future performance, so try the calculation yourself and check your own assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company’s future capital requirements, so it does not give a full picture of a company’s potential performance. Given that we are looking at Eversource Energy as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we’ve used 6.7%, which is based on a levered beta of 0.875. Beta is a measure of a stock’s volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.
View our latest analysis for Eversource Energy
Strength
Weakness
Opportunity
Threat
Although the valuation of a company is important, it shouldn’t be the only metric you look at when researching a company. DCF models are not the be-all and end-all of investment valuation. Rather it should be seen as a guide to “what assumptions need to be true for this stock to be under/overvalued?” For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. What is the reason for the share price sitting below the intrinsic value? For Eversource Energy, we’ve put together three relevant items you should further research:
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Risks: Take risks, for example – Eversource Energy has 3 warning signs (and 2 which are concerning) we think you should know about.
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Management:Have insiders been ramping up their shares to take advantage of the market’s sentiment for ES’s future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
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Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered!
PS. Simply Wall St updates its DCF calculation for every American stock every day, so if you want to find the intrinsic value of any other stock just search here.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
