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Did US Tax Reform Prompt CenterPoint Energy to Hike '17 View?

Zacks Equity Research

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

The current Zacks Consensus Estimate for earnings is pegged at $1.31, higher than the mid-point of the company-provided range.

Details of the Updated Outlook

Per management, 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. This updated guidance also takes into account the company’s midstream investments as well as amortization of CenterPoint Energy's basis difference in Enable Midstream.

The guidance is also takes factors like Enable Midstream's most recent public outlook for 2017 provided on Nov 1, 2017, and projected effective tax rates. However, it excludes potential impacts such as any change in accounting standards or Enable Midstream's unusual items. The outlook also excluded one-time items like changes in accounting standards or unusual items, earnings or losses from the change in the value of the ZENS securities and related stocks, or the timing effects of market-to-market accounting in the company's Energy Services business.

What Led to the Upbeat Guidance?

The recently passed $1.5-trillion tax bill by the U.S. Senate, which includes a deep tax cut for corporates, seems to have played a major role in the lifting of the guidance. In fact, during the third-quarter earnings call, the company did give an indication that a favorable tax reform might result in a lower tax rate for CenterPoint Energy. So, shelling out less in form of tax will boost the bottom line.

Moreover, the company had earlier projected income tax rate at 36% for 2017 despite witnessing a slightly higher rate of 37% in the third quarter. The latest tax reform might have pulled down the rate further for the company, thereby leading to the raised outlook.

Moreover, CenterPoint Energy’s venture in Enable Midstream has been consistently boosting the bottom line. Considering the fact that Enable Midstream continues to see a strong level of activity on their system with 40, it must have also contributed to this raised bottom line guidance.

What Lies Ahead?

CenterPoint Energy has been investing substantially to expand its operations to cope with increasing utility demand. The company is currently focused on upgrading infrastructure and improving reliability. Toward this end, the company maintains its capital outlay of $7 billion from 2017 through 2021. With respect to bottom-line growth, CenterPoint Energy expects to witness 4-6% annual EPS growth or exceeding the high end of the range through 2018, inclusive of Midstream Investments.

Notably, the Zacks Consensus Estimate for earnings is pegged at $1.41 for 2018, reflecting year-over-year improvement of 7.8%.

Price Movement

CenterPoint Energy’s stock has moved up about 10.4% in the last 12 months compared with the broader industry’s gain of 4.7%. This outperformance must have been led by significant customer growth as well as investments to upgrade infrastructure.

 

 

Zacks Rank & Key Picks

CenterPoint Energy carries a Zacks Rank #3 (Hold). Investors can consider better-ranked stocks in the same industry such as FirstEnergy Corporation FE, PPL Corporation PPL and WEC Energy Group, Inc. WEC, all of which carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

FirstEnergy posted positive average earnings surprise of 4.67% in the trailing four quarters. Additionally, its current-year estimates have increased by 4 cents to $3 per share in the last 60 days.

PPL posted positive average earnings surprise of 6.26% in the last four quarters. Additionally, its current-year estimates have increased by a penny to $2.18 per share in the last 60 days.

WEC Energy posted positive average earnings surprise of 3.08% in the trailing four quarters. The company boasts a solid long-term earnings growth rate of 5.4%.

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