Entergy Benefits From Growth Investment Opportunities in Gulf Coast

Strategist

Travis Miller

Revenue segments as reported by the company.

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Natural gas

Competitive businesses

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An operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX.

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Entergy's growing, energy-hungry customer base and constructive rate regulation in the US Southeast give the company a long runway of earnings and dividend growth potential.

We expect Entergy to invest nearly $7 billion annually on average for the next five years to upgrade its electric grid and expand its clean energy portfolio. Industrial customers, which represent about half of Entergy's customer base, generally support these investments in reliability and power generation with lower carbon emissions.

We forecast Entergy's planned growth investments and customer growth will lead to annual earnings growth toward the top half of management's 6%-8% target. Constructive regulatory outcomes could push management's $20 billion capital investment plan in 2024-26 higher, boosting earnings growth to near 8% through the decade.

In the last few years, Entergy has transformed itself into a mostly regulated utility, similar to many of its peers. It owned the second-largest US nuclear fleet for nearly two decades, with six plants in the Northeast and four rate-regulated plants in the Southeast. The plants in the Northeast at their peak earned more than Entergy's rate-regulated utilities.

The Northeast nuclear fleet became a financial drag as power prices fell. Management began exiting the business in 2014 by selling and retiring the plants, most notably the Indian Point units that supplied as much as 25% of New York City's electricity but succumbed to antinuclear policymakers. Entergy closed its last nonutility nuclear plant in May 2022 and transferred decommissioning responsibilities to other companies. It no longer has direct energy market exposure.

Entergy's unique risk is severe storm activity in its Gulf Coast service territory that can result in billion-dollar repair costs. Regulators have a long history of allowing Entergy to recover those costs from customers, limiting the financial risk for shareholders. Part of the company's growth investment is to harden the grid against storms, particularly in Louisiana.

Dividend growth could trail earnings growth slightly as Entergy executes its growth investment plan.

Business Strategy & Outlook

We believe Entergy has a narrow economic moat after retiring or selling all of its no-moat merchant nuclear power plants.

A constructive regulatory environment for Entergy’s five regulated integrated utilities is the foundation of its narrow moat. Entergy’s utilities own difficult-to-replicate networks of power generation, transmission, and distribution assets that provide essential electricity service to customers.

Service territory monopolies and efficient scale advantages are the primary moat sources for regulated utilities like Entergy. State and federal regulators grant Energy’s utilities exclusive rights to charge customers rates that allow the utilities to earn a fair return on and return of the capital they invest to build, operate, and maintain their distribution networks.

In exchange for Entergy’s service territory monopolies, state and federal regulators set returns at levels that aim to minimize customer costs while offering fair returns for capital providers. This implicit contract between regulators and capital providers should, on balance, allow Entergy’s regulated utilities to earn more than 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.

Entergy's utilities all operate with formula rate plans, which reduce regulatory lag and enhance earned returns on capital.

Within this regulatory framework, the threat of material long-term value destruction is low, and normalized returns should exceed Entergy’s cost of capital, leaving us comfortable assigning a narrow moat rating.

Narrow

Economic Moat

Entergy

Entergy Corp. is a holding company, which engages in electric power generation and distribution. It operates through the following segments: Utility and Entergy Wholesale Commodities. The Utility segment includes the generation, transmission, distribution, and sale of electric power and the operations of a natural gas distribution business. The Entergy Wholesale Commodities segment owns, operates, and decommissions nuclear power plants and sells electric power. The company was founded by Harvey Couch on November 13, 1913, and is headquartered in New Orleans, LA.

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Entergy reports strong 2022 results and outlines growth strategies

Entergy's strong performance in 2022 and positive outlook for 2023 reflect a commitment to growth and customer-centric initiatives. The focus on clean energy investments, regulatory progress, and shareholder contributions underpin the company's strategic direction. Challenges in managing costs and regulatory filings are being addressed, while opportunities in resiliency investments and tax credit strategies are being pursued.

Entergy reports solid Q1 earnings, focuses on sustainability and growth

Entergy's Q1 performance reflects resilience and strategic investments in clean energy and reliability. Strong financials and stakeholder engagement position the company for sustainable growth.
Challenges include regulatory uncertainties and market concerns, requiring proactive risk management and strategic decision-making. Opportunities lie in leveraging financial strength and sustainability initiatives for market differentiation and growth.
Overall, Entergy's focus on sustainable value creation, community support, and regulatory alignment underscores its commitment to long-term success and stakeholder satisfaction.

Entergy meets Q2 earnings, plans renewable growth and regulatory advances

Entergy's Q2 performance met guidance, with a focus on clean energy investments and operational improvements.
Despite challenges in industrial sales, the company is poised for growth through renewable capacity additions.
Regulatory progress and strong financial results indicate a stable outlook for Entergy.
Balancing investments in resilience and reliability with financial performance remains a key focus.

Entergy reports robust Q3 earnings, navigates regulatory challenges for growth

Entergy's Q3 performance reflects operational strength amid challenging conditions, supported by strategic investments in reliability and resilience. While facing regulatory and operational hurdles, the company is proactively addressing debt reduction and pursuing growth opportunities through federal programs and strategic investments.

Entergy reports strong 2023 results, focuses on clean energy growth

Entergy's strong financial performance, operational excellence, and strategic focus on clean energy projects position the company for continued growth and stakeholder value creation.
While facing challenges such as tax audit impacts and regulatory compliance, Entergy's resilience efforts and customer-centric approach offer avenues for sustainable growth and market leadership.
Opportunities in revenue expansion, market penetration, and innovation through clean energy initiatives underscore Entergy's potential for future success and industry leadership.
Overall, Entergy's 2023 results and 2024 outlook reflect a balanced approach to financial performance, operational efficiency, and strategic investments for long-term sustainability.

Entergy reports Q1 earnings in line, eyes data center growth

Entergy's Q1 performance, though slightly below expectations, remains on track with annual commitments, supported by operational progress and regulatory approvals.
The company's focus on attracting data centers presents growth opportunities, backed by regulatory and community support for economic development initiatives.
Challenges like weather impacts and wildfire risks are being addressed, while strategies to enhance financial performance and mitigate litigation risks are in progress.

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Entergy Corp. is a holding company, which engages in providing electric and natural gas services. It operates through the Utility, and Parent and Other segments. The Utility segment includes the generation, transmission, distribution, and sale of electric power in portions of Arkansas, Mississippi, Texas, and Louisiana. The Parent and Other segment refers to the parent company, Entergy Corporation, and other business activities. The company was founded by Harvey Couch on November 13, 1913 and is headquartered in New Orleans, LA.

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