We have maintained our Neutral recommendation on CenterPoint Energy, Inc. (CNP) on Aug 28, 2013 based on the company’s diversified risk profile and stable regulated operations. However, these positives are partly tempered by the tepid economy and volatility in gas prices.
Why the Reiteration?
CenterPoint Energy’s stable and regulated electric power operations and gas distribution utilities generate a relatively stable and growing earnings stream. Indeed, during the second quarter 2013, the company posted strong results based on its varied portfolio and solid results at its gas distribution utilities.
The company’s divergent and diversified service territory is spread across six states that diversify risk and insulate the company from individual state specific risks. This is complemented by its expanding pipeline network, the expansion of its pipeline capacity, and rate base growth.
The company is also proactive on the regulatory front and allows annual adjustment of distribution rates to reflect changes in expense, capital investment and customer usage with the help of a distribution cost recovery mechanism.
Going forward, key growth drivers include the recently formed master limited partnership between CenterPoint Energy, OGE Energy Corp. (OGE) and ArcLight Capital Partners, LLC, ongoing infrastructure development projects, major deals & agreements, a stable balance sheet and a high dividend yield.
Despite these positives, pending regulatory cases, the tepid economy, lower demand for electricity, volatility in wholesale natural gas prices and a significant presence in a hurricane zone keep us concerned.
Other Stocks to Consider
CenterPoint Energy presently retains a Zacks Rank #3 (Hold). However, stocks that are worth considering in the space are Alliant Energy Corp. (LNT) and IdaCorp, Inc. (IDA), both with a Zacks Rank #2 (Buy).
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