CenterPoint Benefits From High Energy Demand Growth in Houston

Strategist

Andrew Bischof

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CenterPoint Energy's regulated utilities have significant growth investment opportunities. We expect the company to invest over $22 billion over the next five years, supporting our expectation that management can achieve the high end of its 6% to 8% annual earnings growth target through 2030, in line with our estimate in 2024-28.

Management's 10-year, $44 billion-plus capital investment plan highlights its confidence in CenterPoint's natural gas business. The company aims to maintain its 60% electric/40% natural gas business mix. New investments will address customer growth; system reliability and resiliency; gas distribution safety and modernization; and renewable energy.

CenterPoint benefits from having over half of its business in Texas, where 1%-2% annual customer growth is among the highest of its utilities peers. We expect additional capital investment opportunities at the company's largest subsidiary, Houston Electric, as a result of constructive legislation that allows for shorter permit timelines and approvals, multiyear resiliency plans with recovery through customer rate riders, and greater use of the utility's temporary electric energy facilities.

Minnesota and Indiana, which represent approximately 30% of rate base, have among the highest population growth rates in the Midwest.

Shareholders have benefited from management's portfolio rotation. CenterPoint exited its partial ownership stake in Enable Midstream Partners and used the proceeds to reduce leverage.

CenterPoint also sold its natural gas distribution utilities in Oklahoma and Arkansas at very attractive prices. In 2024, management announced the sale of its Louisiana and Mississippi gas subsidiaries for $1.2 billion, implying a 1.55 times rate base and 32 times earnings. We think reallocating capital to areas with more attractive growth and regulatory support is a positive for shareholders. These actions have shored up the company's balance sheet and provide an efficient source of funding for its capital investment plan.

Business Strategy & Outlook

We assign CenterPoint Energy a narrow moat rating.

State regulators have recognized the need for shareholders to earn an adequate return on investment. In exchange for earning a fair return for its shareholders, CenterPoint's utilities are expected to provide safe and reliable service at the lowest possible rates. This implicit contract between regulators and capital providers should, on balance, allow CenterPoint's regulated utilities to earn above their costs of capital, though observable returns might vary in the short run based on demand trends, investment cycles, operating costs, and access to financing.

CenterPoint is concentrating its growth expenditures in jurisdictions with favorable regulatory frameworks. At Houston Electric, CenterPoint's largest business unit, the utility has automatic rate recovery mechanisms for approximately 95% of its capital plan. This reduces regulatory lag and the frequency of rate cases.

The company's natural gas distribution businesses also have favorable regulatory frameworks. In Texas, home to its largest gas distribution system, the Gas Reliability Infrastructure Program allows annual filings for incremental capital investments. In Minnesota's traditional regulatory framework, utilities can implement interim rates 60 days after filing a rate request, and the regulatory framework has been good to date.

Narrow

Economic Moat

CenterPoint Energy

CenterPoint Energy, Inc. is a holding company, which engages in the business of power generation and distribution. It operates through the following segments: CenterPoint Energy, Houston Electric, and CERC. The CenterPoint Energy segment consists of electric transmission and distribution services in the Texas gulf coast area in the ERCOT region and electric transmission and distribution services primarily to southwestern Indiana and includes power generation and wholesale power operations in the MISO region. The Houston Electric segment consists of electric transmission services to transmission services customers in the ERCOT region and distribution services to REPs serving the Texas gulf coast area. The CERC segment covers the Restructuring consisting of intrastate natural gas sales to, and natural gas transportation and distribution for residential, commercial, industrial and institutional customers in Indiana, Louisiana, Minnesota, Mississippi, Ohio and Texas, and permanent pipeline connections through interconnects with various interstate and intrastate pipeline companies through CEIP. The company was founded in 1866 and is headquartered in Houston, TX.

Earnings data Q1 2024

CenterPoint Energy reports strong Q1 earnings, focuses on grid resiliency

CenterPoint Energy's Q1 2023 performance demonstrated continued financial strength and resilience, with a focus on maintaining customer charges and driving non-GAAP EPS growth. However, challenges related to regulatory updates and debt metrics were raised by analysts. The company sees opportunities in driving growth through ecosystem development and enhancing grid reliability and resiliency.

CenterPoint Energy reports strong Q2 earnings and explores growth opportunities

CenterPoint Energy's Q2 2023 earnings call highlighted strong financial performance, ongoing regulatory and legislative progress, and a focus on sustainable growth. Despite credit rating declines, the company anticipates improved credit metrics and is exploring opportunities for cheaper financing. Challenges include potential capital investments beyond identified targets and the need to navigate short-term uncertainties.

CenterPoint Energy reports strong Q3 earnings and announces leadership transition

CenterPoint Energy reported strong financial results and expressed confidence in its future performance. The company faces challenges in managing rate cases and regulatory filings but is actively pursuing opportunities for capital resequencing and community engagement. The leadership transition and focus on customer-centric initiatives position the company for continued growth and success.

CenterPoint Energy reports robust earnings, plans capital expansion and asset sales

CenterPoint Energy's Q4 2023 earnings call highlighted strong financial performance, a focus on balance sheet strength, and revised capital investment plans. The sale of LDCs is expected to boost financing flexibility, while challenges include managing cash tax payments and potential impacts on tax projections. Opportunities lie in future capital raises, growth in the Houston area, and enhancing EPS growth through strategic capital deployment.

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CenterPoint Energy, Inc. is a holding company, which engages in the business of power generation and distribution. It operates through the following segments: Electric, Corporate and Other, and Natural Gas. The Electric segment includes electric transmission and distribution services. The Corporate and Other segment refers to the energy performance contracting and sustainable infrastructure services. The Natural Gas segment is involved in the sales of intrastate natural gas, permanent pipeline connections, and home appliance maintenance and repair services. The company was founded in 1866 and is headquartered in Houston, TX.

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HOUSTON, Oct. 30, 2020 /PRNewswire/ -- CenterPoint Energy, Inc. (NYSE: CNP) will host a virtual Analyst Meeting on Monday, Dec. 7, from 9 to 11 a.m. CT / 10 a.m. to noon ET. The meeting will focus on a multi-year outlook for maximizing value for CenterPoint Energy's stakeholders through a...

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HOUSTON, Oct. 29, 2020 /PRNewswire/ -- CenterPoint Energy, Inc.'s (NYSE: CNP) board of directors today declared dividends on shares of its common stock and Series B Mandatory Convertible Preferred Stock. Common Stock Dividend The company's board of directors declared a regular quarterly...

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Is CenterPoint Energy (CNP) a great pick from the value investor's perspective right now? Read on to know more.

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CenterPoint (CNP) possesses the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

News for CenterPoint Energy Stock (CNP)