ROIC of 0.89% versus 5.09% cost of capital means every invested dollar destroys value, yet trades at 48.7x EBITDA.
A regulated utility priced at growth multiples while its return on capital sits 420 basis points below its cost of capital, creating systematic value destruction.
Is the company creating or destroying value with its capital allocation?
This framework sees clear value destruction — every dollar of invested capital returns 89 cents while costing 509 cents. The massive infrastructure program compounds this destruction by deploying ever more capital at negative spreads.
What growth does the current price imply, and is it reasonable?
The price implies growth expectations that defy utility economics — the reverse DCF cannot compute a positive value even with aggressive assumptions. A regulated utility trading at tech-like multiples suggests the market expects acceleration that base rates say won't occur.
Does this company have structural reasons to defy typical utility mean reversion?
Base rates strongly favor mean reversion — utilities with deteriorating gross margins and extreme leverage typically see valuation compression. The regulated monopoly status provides stability but not immunity from financial gravity when margins turn negative.
Is the company's growth creating or destroying value?
Growth is clearly value-destroying — the company invests $8.5B to generate returns of 0.89% against a 5.09% cost of capital. This framework recognizes growth for growth's sake as the cardinal sin of capital allocation.
Applying this framework reveals a regulated utility systematically destroying value while priced for growth. With ROIC 420 basis points below WACC and a reverse DCF showing negative intrinsic value, the expectations gap has become a chasm. The company demonstrates skill at managing quarterly expectations but not at creating economic value. When does a utility trading at 48.7x EV/EBITDA return to base rates?
This analysis applies Michael Mauboussin's published investment framework to publicly available financial data. It is not authored by, endorsed by, or affiliated with Michael Mauboussin. Educational purposes only. Not financial advice.