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Long/short equity, value, research analyst, growth at reasonable price “}); $$(‘#article_top_info .info_content div’)[0].insert(bottom: $(‘mover’)); } $(‘article_top_info’).addClassName(test_version); } SeekingAlpha.Initializer.onDOMLoad(function() setEvents();); Summary Heavily Houston-focused profit center, accounting for two-thirds of total operating income. Electricity demand fears for the area may be overdone. 3%-4% earnings and cashflow growth FY’15-17 would support equivalent dividend growth rate. DCF valuation suggests value of $24.50 per share. CenterPoint Energy’s (NYSE: CNP ) primary business focus is around the Houston area, which along with the downturn in the Oil & Gas industry, are two issues weighing heavily on CNP’s share price. Demand may be more resilient than what investors expect. However, even a 3%-4% earnings and cash flow CAGR outlook will support an equivalent dividend growth rate. The prospective dividend yield of nearly 5% looks attractive, with CNP yielding over 100 bps more than its peers. Income investors should start to circle. Houston-focused business activities delivered two-thirds of operating income last year CNP’s Houston-focused electrical transmission and distribution business delivered around two-thirds of the company’s total operating income in FY’14. Because of this, concerns around job losses in the area and the sharp downturn in the oil & gas industry have impacted sentiment in the CNP share price. That said, the CNP management team believes that Houston’s Head-office status, as opposed to Operating company status, could leave it more resilient to job cuts and thus electricity demand than the stock market believes. Q1-15 customer growth rate of 2% supports this theory. Utility Rate Relief possible in H2-15, one of two possible share price catalysts CNP’s Natural Gas Utilities have filed this year for a combined $20 million rate increase via four recovery mechanisms and one rate case, each with expected 2H-15 effective dates. Management also plans to file rate cases in Minnesota and Arkansas in 2H-15. Management spoke constructively of recent regulatory reform in Arkansas that is expected to reduce the regulatory lag going forward. News on this could act as a share price catalyst along with clarity on the long-term dividend growth outlook. Management has promised to update investors on this in August. DCF methodology suggests value of $24.50 per share My DCF model suggests an implied fair value of $24.50 per share based on conservative assumptions. There are also two possible share price catalysts looming and the stock dividend yielding around 5% on a prospective basis. I think that CNP is worth a second look. Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in CNP over the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. Share this article with a colleague Scalper1 News
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