CHESAPEAKE UTILITIES CORP (CPK) stock intrinsic value fair value estimate & owner earnings analysis

Chesapeake Utilities is a regulated gas and electric utility holding company. Its largest operations are natural gas distribution in Florida (Florida Public Utilities and Florida City Gas, acquired from Florida Power & Light in November 2023 for about $923 million), Delaware and Maryland, plus a small Florida electric utility. It also owns regulated pipelines (Eastern Shore, Peninsula Pipeline) and smaller unregulated businesses: propane delivery, Marlin Gas Services (compressed and renewable natural gas) and Aspire Energy in Ohio. State regulators set rates and the return the company may earn on the infrastructure it builds, which makes earnings steady but dependent on rate-case outcomes. **How we measured earnings.** We look at the cash the business generates for its owners after spending needed to keep the existing system running, before paying lenders, and then subtract what the company owes. Three judgments matter. First, the filings do not split capital spending into upkeep and growth. We set upkeep equal to depreciation (about $108 million in 2025) rather than total capital spending ($449 million), because most of the spending is new pipelines, customer connections and mandated programs such as FPU's GUARD ($205 million over ten years) and FCG's SAFE (about $255 million over ten years), which add to the rate base. If true upkeep ran 25% above depreciation, our base estimate would fall to about $79 a share. Second, deferred income taxes ($29–36 million a year) come from accelerated tax write-offs on growth spending that we do not credit, so we fade them to zero over ten years in the base case. Third, about $377 million of construction in progress, already paid for and under way, is counted at cost rather than at an assumed future return. **Normal earnings level.** We use 2024 and 2025, the first two full years with Florida City Gas; earlier years describe a smaller company. Cash earnings before interest were about $222 million and $230 million, around $9.35 a share on today's share count. After interest, owner earnings were $6.60 and $6.69 a share. The first half of 2026 supports this: net income was up 13%, and trailing twelve-month cash earnings excluding tax deferrals were about $213 million against a $193 million normal level. First-half operating cash flow of $214 million (versus $139 million a year earlier) was mostly timing, namely collection of winter receivables and larger tax deferrals, and we excluded it. Our base case starts the next year at $236 million, 2.5% above 2025's $230 million, below the 3.9% growth of the prior year. **What growth we credited.** Only growth that is already secured: $16.2 million a year of interim rates the Florida PSC approved for Florida City Gas effective July 2026, and the step-ups from the Florida Public Utilities settlement ($8.6 million in 2026 and $9.1 million in 2027, against $7.0 million earned in 2025). We left out the $1.2 billion Florida Energy Pathway pipeline (targeted for 2030 and not yet built), the $1.5–1.8 billion five-year capital plan, and further customer growth, because each requires new capital whose return is not yet secured. After year ten we assume today's earning power continues, flat, because the regulated rate base keeps being maintained. We assume no growth in that period. **Base case: about $98 a share.** The business is worth about $163 a share. It owes about $65 a share: net borrowings of $1.69 billion at June 30, 2026 (long-term notes of $1.45 billion plus $238 million drawn on the credit line), less about $105 million because many long-dated notes carry coupons of 2.5–4%. Maturities are $135 million (2026), $132 million (2027), $197 million (2028), $157 million (2029), $212 million (2030) and $633 million after that, against a $650 million credit line; debt is roughly half of capital. **Bear case (roughly a one-in-ten outcome): about $81 a share.** Business worth about $148 a share, owes about $67. It assumes: the Florida City Gas rate case ends at $10 million a year against a $47 million request, with part of the interim rates refunded (the company's two most recent settled cases came in near half of the request: Delaware $6.1 million of $12.1 million, Maryland $3.5 million of $6.9 million); two mild winters (the 2024-to-2025 weather swing was worth $9.5 million of margin); later rate cases settling low enough to cut core earnings by 5% from year four; tax deferrals fading in five years; refinancing the roughly $640 million of notes maturing through 2030 at 7% (the November 2023 notes averaged 6.54%); and only 85% of construction in progress recovered. Cash earnings stay above $190 million a year, about 2.6 times the interest bill. **Bull case (roughly a one-in-ten outcome): about $108 a share.** Business worth about $173 a share, owes about $65. It assumes Florida City Gas wins about 70% of its request ($33 million), and the continuing investment program keeps tax deferrals going for fifteen years. **What changed since the previous analysis.** The earlier figures were built on a different basis and are not comparable. In the business itself: the Florida Supreme Court in June 2026 rejected the Public Counsel's appeal of Florida City Gas's 2023 rates; interim rates of $16.2 million a year were approved in July; first-half earnings rose; but net borrowing and the share count both grew (shares are up about 3% in a year) as the company spends $450–500 million a year, and the Public Counsel is opposing the pending rate case. The late-September hearing's outcome was not known when we wrote this. **Margin-of-safety price: $66 a share.** We are quite sure of the earnings level: it is regulated, covers its interest about three times and has held for two full years. We are less sure of the upkeep figure and of the rate-case outcomes. The worst plausible case is a regulatory setback combined with upkeep costs above depreciation, which would leave the shares worth about $63. The business would survive that, since its debt is unsecured, spread across 2026–2042 maturities, and about half of capital. If we are wrong about upkeep alone the shares are worth about $79. The price assumes a holding period of about three years for rate cases to settle. Over that period, the $2.94 a share annual dividend (4.5% of $66) is paid, though part of it is financed by new borrowing and share sales. From $66, the base case implies about a 21% annual return over three years, and the bear case about 14%. Items we could not reconcile: the filings do not separate upkeep from growth spending, so that judgment is ours, and the Florida Energy Pathway's customer commitments are not disclosed in the filings we reviewed.