HTO: Initiating at Equal Weight, $60 PT

Research evidence excerpt

HTO: Initiating at Equal Weight, $60 PT

lities with the operations

and balance sheet to relieve that distress. With solid footprints in 4 states there could be ample

opportunities to acquire munis and co-ops. We see the organic growth opportunities for HTO as

relatively insulated from the business cycle and affordability concerns with capex driven by replacing

1% of the system’s pipes per year offering perpetual investment opportunities and average bills below

1% of the median household income in all of HTO’s jurisdictions. PFAS remediation offers additional

investment opportunities well-supported by regulators and legislators as evidenced by CT Water

Quality Treatment Adjustment (WQTA) mechanism that allows recovery of capex spend for PFAS

treatment outside of general rate cases in the state; the company attributes 15% of its 5-year capital

plan to PFAS remediation.

Valuation: We arrive at our $60 price target by applying our 17.5x target multiple to 2028 earnings

for regulated utilities and a -1x turn discount. The -1x discount reflects the risks involved in the

Quadvest acquisition with 2028 earnings sensitive to any delay in the deal closing and potential

for the major rate step up for Quadvest customers pressuring the company’s 10.88% ROE on 58%

equity in TX. We model a ~7.9% EPS CAGR through 2030 which is in line with the group average

growth, thus no premium/discount for EPS CAGR. There are three substantial hurdles between HTO

and achieving that EPS CAGR, however. 1) regulatory approval of the Quadvest merger with closing

already slipping from mid-2026 to 2H 2026, recall delays would not only delay accretion from the

deal, but also the recovery of $300M in investment elsewhere in TX, we estimate new rates being