On Jun 13, we issued an updated research report on CenterPoint Energy, Inc. (CNP). The utility company’s strong financial position, methodical investment in electricity transmission and distribution, favorable natural gas ventures and stable customer gains are expected to spur future growth significantly. However, volatility in wholesale natural gas prices and over-dependence on retail electric providers for rate payments might pose considerable challenges to the company in the future.
CenterPoint Energy, a Zacks Rank #2 (Buy) stock, reported strong results in first-quarter 2014. Both earnings as well as revenues surpassed the Zacks Consensus Estimates and improved year over year, primarily on the back of a severe winter and higher share counts.
CenterPoint Energy maintained a favorable liquidity position backed by a stable cash generation capacity. As of Mar 31, 2014, the company’s cash balance stood at around $0.38 billion and $1.2 billion of revolving credit facility. In the first quarter, CenterPoint Energy’s cash flow from operating activities totaled $0.38 billion.
CenterPoint Energy continues to add customers at its service regions, mainly on the back of steady economic improvement. An increase in customer base and an improvement in utility consumptions are expected to drive revenues.
CenterPoint Energy is currently expanding its operations to meet increasing demand. Additionally, the company intends to invest $1.4 billion in its capital spending program in 2014. A major portion of the funds is expected to be allocated toward system modernization initiatives and maintenance projects.
On the downside, CenterPoint Energy’s natural gas distribution segment is sensitive to volatility in natural gas prices. Thus, lack of stability in natural gas prices and lower wholesale opportunities might impact the company’s future performance.
Key Picks from the Sector
Other well-performing stocks in the utility sector worth considering include Entergy Corporation (ETR), Korea Electric Power Corporation (KEP) and NRG Energy, Inc. (NRG). All the stocks carry a Zacks Rank #1 (Strong Buy).
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