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Entergy Divests Pilgrim Power Plant, Renewables in Focus

Zacks Equity Research

Entergy Corporation ETR recently completed the sale of the Pilgrim Nuclear Power Station to a subsidiary of Holtec International. The plant has been closed since May 31, 2019.

The agreement includes the transfer of the nuclear decommissioning trust and plant decommissioning to Holtec.

Rationale Behind the Deal

To reduce volatility at the Entergy Wholesale Commodities (EWC) business, the company has decided to cease merchant power generation at all EWC power plants by mid-2022. In line with this, Entergy wrapped up the sale of its Vermont Yankee nuclear power plant to the subsidiaries of NorthStar Group Services in January 2019. In April, it also signed an agreement to sell 100% of the equity interests in its subsidiaries that own the Indian Point 1, Indian Point 2 and Indian Point 3 nuclear plants for decommissioning. Additionally, the company plans to shut down the Palisades power plant in October 2019.

In recent times, many U.S. reactors are struggling due to low natural gas and power prices in competitive markets. Evidently, the strategy of divesting its merchant power business seems to be lucrative as regulated spending offers a secured rate of return. The successful Pilgrim transaction demonstrates continued progress on Entergy’s exit from merchant power markets, which will further enable it to operate as a pure-play utility.

Looking Ahead

Per an announcement made by Entergy earlier, the Pilgrim transaction will lead to a loss of approximately $120 million initially. However, the company focuses on adding more clean energy to its grid, which is likely to help it overcome the estimated loss in the long run, considering the growing demand for renewable energy.

To this end, it is imperative to mention that Entergy is making steady progress on adding renewable generation to its portfolio. The company currently boasts approximately 1,000 megawatts (MW) of renewables in various stages of development. These projects are under development and their in-service dates range from 2019 to 2022.                                                

Notably, earlier this year, Entergy Arkansas signed an agreement to purchase a to-be-constructed solar energy facility of approximately 100-MW. The facility is expected to be in service by 2021. Such initiatives are expected to bolster the company’s position in the booming renewable energy market. In August, Entergy New Orleans added 90 MW of renewable energy to its portfolio.

Price Movement

In the past year, shares of Entergy have gained 39.7% compared with the industry’s 15.7% growth.


Zacks Rank & Stocks to Consider

Entergy currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the same space are Alliant Energy Corporation LNT, NRG Energy, Inc. NRG and Idacorp Inc. IDA, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alliant Energy has an estimated long-term earnings growth rate of 5.5%. The Zacks Consensus Estimate for 2019 earnings has risen 0.45% to $2.25 in the past 90 days.

NRG Energy has an estimated long-term earnings growth rate of 36.3%. It outpaced the Zacks Consensus Estimate for earnings in the trailing four quarters by average of 6.37%.

Idacorp has an estimated long-term earnings growth rate of 3.80%. It exceeded the Zacks Consensus Estimate for earnings in one of the trailing four quarters by average of 11.64%.

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