We have retained our Neutral recommendation on the integrated energy company Entergy Corporation (ETR).
Entergy Corporation’s performance to a great extent depends on the rate relief it receives in its different service areas. An unfavorable regulatory ruling will have an adverse impact on the company’s financial results.
The company operates in the Gulf Coast which is prone to strong hurricane activity. This service area exposes Entergy to damage and expenses associated with storm-related restoration, which at times may be difficult to fully recover through rates. These uncertainties from nature’s furies render the company’s earnings at best volatile.
The positive catalysts for the company are its geographically diverse mix of regulated and merchant operations, its strong balance sheet, and a consistent effort on the part of the company to maximize shareholder value by share buybacks and payment of dividend.
Despite the positives, moderate growth in its competitive business on account of lukewarm power demand in the Northeast can hurt the company’s bottom line. Besides, possibility of bottleneck in the supply of uranium can thwart power generation at its nuclear power plants. Hence, we remain on the sidelines with a more cautious stance.
Guidance
During the second quarter earnings release Entergy affirmed its fiscal 2011 earnings guidance in the range of $6.35−$6.85 per share on both as-reported and operational bases.
Our cautious outlook on Entergy is reflected in our 2011 estimate, which, at $6.68 per share, is presently pegged mid way of the company’s guided range.
Entergy Corporation currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.The company competes with American Electric Power Co. Inc. (AEP), CenterPoint Energy Inc. (CNP) and Southern Company (SO).
New Orleans, Louisiana-based Entergy Corporation along with its subsidiaries engages in electric power production and retail electric distribution operations.
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