Why Eversource Energy Stock Was Wilting This Week
Key Points
A regulator quashed the proposed sale of a water utility it owns.
This was to be divested in a deal worth around $2.4 billion.
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Recently, it seemed almost like someone shut the lights off on Eversource Energy (NYSE: ES) stock. Investors traded out of the regional New England electric and natural gas utility in a rout that began on Wednesday, following a regulator's decision. Week-to-date as of mid-afternoon Friday the company's shares were down nearly 12% in price, according to data compiled by S&P Global Market Intelligence.
Down the tubes
On Wednesday, Connecticut's Public Utilities Regulatory Authority (PURA) turned down Eversource's proposed sale of its water utility unit, Aquarion. This was to be a major deal -- the company had agreed to divest it to a quasi-public corporation in the state, the Aquarion Water Authority, in a transaction valued at around $2.4 billion.
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PURA commissioner Holly Cheeseman was quoted by local TV station WFSB as saying of the proposal, "Although the standards were met in a number of areas, with regard to the areas of managerial responsibility and suitability, the application failed."
The sale of Aquarion, the largest water utility in Connecticut, faced notable opposition, especially in the political sphere. Many Democrat and Republican lawmakers alike were against it, with some citing the potentially harmful financial impact on customers.
New strategy needed
Responding to the decision, Eversource said that "The special act approved by legislators in 2024 indicated that the state was interested in an expanded non-profit model. However, once tested, that same special act proved difficult to overcome for PURA to move away from an investor-owned model."
The company was referring to legislation passed in 2024 that essentially allowed Aquarion Water Authority to buy the water utility.
This is undoubtedly a tough blow to Eversource, which is currently grappling with organizational sprawl and high long-term debt levels. Selling a major business unit is never easy, particularly if it covers a public utility. The company has its work cut out for it with Aquarion, and until there's a new, clear path forward, I'd avoid Eversource stock.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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