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CenterPoint Energy Up on Capex Plan, Hiked View: Time to Buy?

Zacks Equity Research

CenterPoint Energy, Inc. CNP is investing substantially to expand its operations to address the increasing utility demand. The company is currently focused on upgrading infrastructure and improving reliability.

To that end, the company recently unveiled a capital expenditure plan for the 2018-2022 period, wherein the energy provider plans to invest $8.3 billion. CenterPoint Energy aims to spend $1.66 billion in 2018 and almost the same amount in each of the following four years.

Notably, to withstand severe weather conditions utilities have to keep their transmission and distribution systems upgraded. During third-quarter 2017 earnings call, the company hinted at increasing its next five-year capital expenditure for both electric as well as gas distribution businesses. The latest investment plan worth $8.3 billion duly reflects the company’s commitment toward offering improved and safe utility services to customers.

Meanwhile, in the first week of January the company provided an updated 2017 guidance, which hints at an improvement in full-year earnings. The company currently expects earnings per share to exceed $1.25-$1.33 in 2017, compared to its prior guidance of earnings at or near the high end of this range.

Recent adjustments made in CenterPoint Energy’s bottom line, including a re-measurement of deferred tax liabilities and a credit to income tax expenses, primarily led to the raised earnings projection.

Coming to the company’s earnings performance, CenterPoint Energy delivered a positive earnings surprise in two of the last four quarters, with an average beat of 6.4%.

Moreover, CenterPoint Energy judiciously utilizes funds in growth projects and at the same time maintains a stable financial position. As of Sep 30, 2017, the company had cash and cash equivalents of $201 million. Such a favorable financial position supports CenterPoint’s practice of paying regular dividends. In December 2017, management approved a quarterly dividend hike of approximately 3.7% for the company’s common stocks.

All these may have led the company to outperform the broader industry over a year. Evidently, CenterPoint Energy’s shares gained 8.5%, compared to the broader industry’s gain of 1.4%.

 

However, the performance of CenterPoint Energy’s regulated electricity and natural gas utilities depends upon rate relief at regular intervals in its different service areas. Any adverse decision in pending regulatory cases can impact the company’s earnings substantially.

Zacks Rank & Other Key Picks

CenterPoint Energy carriesa Zacks Rank #2 (Buy).

A few other top-ranked stocks in the same space are Pampa Energia S.A. PAM, Consolidated Edison Inc. ED and Algonquin Power & Utilities Corp. AQN. While Pampa Energia sports a Zacks Rank #1 (Strong Buy), Consolidated Edison and Algonquin Power carry a Zacks Rank #2 , each. You can see the complete list of today’s Zacks #1 Rank stocks here.

Pampa Energiadelivered a positive average earnings surprise of 585.71% in the last four quarters. Additionally, the 2018 Zacks Consensus Estimate improved 62 cents in the last 60 days.

Consolidated Edison posted a positive average earnings surprise of 0.06% in the trailing four quarters. The company has a long-term earnings growth rate of 2%.

Algonquin Power delivered a positive average earnings surprise of 33.2% in the last four quarters. The company has a long-term earnings growth rate of 15%.

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CenterPoint Energy, Inc. (CNP) : Free Stock Analysis Report
 
Consolidated Edison Inc (ED) : Free Stock Analysis Report
 
Pampa Energia S.A. (PAM) : Free Stock Analysis Report
 
Algonquin Power & Utilities Corp. (AQN) : Free Stock Analysis Report
 
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