Entergy Earnings: Long-Term Growth on Track, Significant Valuation Upside

We are reaffirming our $120 fair value estimate for Entergy ETR after the company reported $3.27 adjusted earnings per share in the third quarter, up from $2.84 in the same year-ago quarter. Year-to-date earnings are on track to meet our full-year estimate. Management’s updates support our long-term growth outlook. We are reaffirming our narrow moat rating.

We continue to forecast 7% earnings growth on a weather-normalized basis for the next five years, in line with management’s 6%-8% target. Entergy’s board raised the dividend 6% to $4.52 per share annualized, consistent with management’s 60%-65% payout ratio target and our estimate. Entergy’s stock has an implied 4.7% yield based on the new dividend as of Nov. 1, one of the highest yields in the utilities sector.

Entergy trades at a 20% discount to our fair value estimate, making it one of the cheapest U.S. utilities we cover. Its 14.5 times P/E is below the utilities sector median of 16 P/E. We think Entergy is one of only a few utilities that offer attractive yield, growth, and valuation upside.

Unusually hot summer weather erased the negative first-half earnings impact from a mild winter, leaving Entergy on track to hit the high end of management’s initial $6.55-$6.85 EPS guidance range. Although weather-adjusted electricity usage is down this year, customer count is up, providing a foundation for long-term growth.

Constructive regulatory developments in several of its jurisdictions during the last few months support our view that Entergy will be able to convert its capital investments into earnings and dividend growth for shareholders.

We expect that management will increase its three-year $16-billion capital investment plan beyond 2025 and extend its 6%-8% earnings growth target when it announces its annual update in mid-November. The recently announced gas business sale provides equity financing for investments in 2025-26 at what we consider an attractive valuation.