Eversource Energy (ES) Cash Flow Statement

The recent quarters show OCF consistently above $900M, suggesting the regulated distribution and transmission businesses generate predictable cash flows. However, the 2024Q1 dip to $291M indicates that timing of rate recovery and seasonal working capital can cause significant swings. This variability underscores the importance of regulatory mechanisms like decoupling in smoothing cash flows.

The elevated CapEx/OCF ratios, reaching 185% in 2024Q4, show that Eversource is investing heavily in its infrastructure, likely for transmission upgrades and grid modernization. This investment is expected to expand the rate base and drive future earnings, but it also means the company relies on external financing to fund the gap. The sustainability of this CAPEX program depends on regulatory approval and the ability to recover costs through rates.

The negative FCF in recent quarters, despite strong OCF, highlights the need for external capital to fund the CAPEX program. The company has issued equity in several quarters, including $582M in 2024Q3, indicating a pattern of using equity to maintain its credit profile. With debt-to-equity at 1.85 (though likely understated), the balance sheet appears stretched, and investors should monitor the cost and availability of future financing.

The wide quarterly swings in OCF suggest that Eversource uses regulatory deferrals to smooth the impact of fuel and purchased power costs, which are passed through to customers. These deferrals create regulatory assets that must be recovered in future rates, adding a layer of uncertainty. The timing of these adjustments can distort quarterly cash flow comparisons, so analysts should focus on annual trends.

Despite the heavy CAPEX and negative FCF, Eversource's dividend appears safe, as OCF comfortably covers dividend payments. The coverage ratio dipped to 1.2x in 2024Q1, but has since recovered, suggesting that the company prioritizes dividend stability. However, if regulatory outcomes worsen or financing costs rise, the dividend growth rate may be constrained to preserve cash.