CNP Stock Forecast: Growing with Transformations and Risks

Yuxiao YangThis CNP Stock Forecast article was written by Yuxiao Yang – Financial Analyst at I Know First.

Highlights

  • CenterPoint Energy had achieved its goal of becoming a pure-play regulated utility to exit the midstream sector.
  • The company is shifting its business mix more toward electric, it projected a 2022 year-end rate base of $20 billion is estimated to be about 62% electric.
  • Continued disruptions to the global supply chain could bring potential risks for CenterPoint Energy to fully execute its 10-year capital plan.
Rapid Response: The future of European energy security - Atlantic Council
(Source: atlanticcouncil.org)

Overview

CenterPoint Energy, Inc.(NYSE: CNP) headquartered in Houston, Texas, is a domestic energy delivery company that includes electric transmission & distribution, natural gas distribution, and energy services operations. CenterPoint Energy sells and delivers natural gas to approximately 4 million homes and businesses in six states: Indiana, Louisiana, Minnesota, Mississippi, Ohio, and Texas. Maintain the wires, poles, and electric infrastructure serving more than 2.8 million metered customers in the greater Houston area and in southwestern Indiana. Own and operate nearly 1,300 megawatts of electric generation capacity in Indiana. Also investing in modernizing natural gas infrastructure and eliminating cast-iron pipe in all territories.

Creating Sustainable Positive Impact

CenterPoint Energy has achieved its goal of becoming a pure-play regulated utility to exit the midstream sector by selling its 100% of common units and Series G preferred units of Energy Transfer LP within 4 months of merger close. This midstream exit plan is part of the company’s 10-Year plan for creating a sustainable positive impact on the environment with less cyclical earnings. Part of the plan is to speed up the transition to the electric segment. This company also shifting its business mix more towards electric, it projected a 2022 year-end rate base of $20 billion is estimated to be about 62% electric.

On other hand, Customers continue to identify incremental needs above the current plan including Resilient collaborations with the City of Houston and others, and new industrial customer needs in Houston and Indiana electric territories. The company’s capital plan is expected to rise to  $19.3B in 5 years and $40B in 10 years. It’s currently executing year 2 of the plan with potential incremental growth, which shows some good signs to investors.

According to the most recent 10-Q of CNP,  there is a gain in the total revenue of $216 million in the three-month period ended March 31, 2022, compared with 2021, and there is an 8.48% increase in revenue.CNP recognized an increase of 7.8% in electric segment Revenue.

*Data source: gurufocus.com
(Figure 1:CNP vs Utilities Regulated Industry)

According to GuruFocus, CNP outperformed most of the companies in the Utilities – Regulated industry. CNP’s ROE is better than 81.75% of companies in the Utilities – Regulated industry. The Net Margin is 19.3%, which is higher than 84.15% of companies in the industry. The ROA is 4.53%, which is higher than the 67.31% of companies in the industry. However, CNP’s 3-Year Revenue Growth Rate and  3-Year EPS are worse than about 73.29%  and 51.29% of companies in the Utilities – Regulated industry.

*Data source: gurufocus.com

CNP has an F-score of 8, It is a positive signal that indicates a healthy situation of CNP. However, The Altman Z-score, which determines the result of a credit test, stays in the distress zone. This implies bankruptcy possibility in the next two years.

Data source: gurufocus.com
(Figure 2: Price Ratios for CNP and Its Peers)

Let’s look at the next comparable companies: CMS, AGR, PPL, FE, EVRG, ETR, LNT and AEE. CNP’s current P/E, P/S and P/B ratios of 11.63, 2.14 and 2.03 are lower than average and median numbers, respectively.

(Source: finance.yahoo.com)

The Yahoo Finance coverage for the company is performed by 16 analysts: 2 of them take Strong Buy, while 14 of them take the Hold position. The analysts’ community puts the average target price for the stock at $33.13 while it is currently traded at $29.53.

Conclusion

CenterPoint Energy continues working on its long-term goal of creating sustainable positive impacts. The company becoming a pure-play regulated utility to exit the midstream sector with less cyclical earnings and expand its electric segment as well as speed up its capital expenditure growth. However, we need to consider the risk factors of continuing disruptions to the global supply chain. Also, the poor financial performance on the 3-Year Revenue Growth Rate and  3-Year EPS will give us some warning as well. So my current suggestion for CNP is to hold.

It is worth paying attention that the stock-picking AI of I Know First has a high signal on the one-year market trend forecasts. The light green for the short-term forecasts is mildly bullish, while the darker green is a strong bullish signal for the one-year forecast.

Past Success with CNP Stock Forecast

I Know First has been bullish on the CNP stock forecast in the past. On March 8th, 2022 the I Know First algorithm issued a forecast for CNP stock price and recommended CNP as one of the best utilities stocks to buy. The AI-driven CNP stock prediction was successful on a 3-month time horizon resulting in more than 8.98%.

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