CenterPoint Energy Earnings: Cost Control Offsets Mild Winter

We are maintaining our $29 CenterPoint Energy CNP fair value estimate after the company reported first-quarter operating earnings of $0.50 per share compared with $0.47 in the same year-ago period. Our narrow moat and stable moat trend remain unchanged.

Management reaffirmed 2023 operating earnings guidance of $1.48 to $1.50 per share, in line with our estimates. With the stock up 11% since its most recent low in March, CenterPoint now trades at a slight premium to our fair value estimate.

Management was able to navigate two key headwinds: higher interest expense and mild winter weather. To help mitigate interest expense pressure going forward, the company reduced floating rate debt to $2.6 billion from $4.5 billion at year-end 2022. Mild weather resulted in a 6% decline in residential customer demand. However, the Houston area, which is CenterPoint’s key operating segment, continued to show strong economic and population growth. More than offsetting these negatives were regulatory recovery through rates and reduction in operating expenses.

CenterPoint’s five-year $20.3 billion capital investment plan, and expectations to spend $43 billion over 10 years, supports our expectations for CenterPoint to meet its 8% annual EPS growth target in 2023 and 2024, and 6% to 8% growth through 2030.

The company invested $1 billion in the first quarter, putting it on track to invest $3.6 billion for the year. As part of its five-year plan, the company has identified $3 billion of additional capital investment opportunities not fully committed as the company works on financing and recovery of those investments. Given the high growth in CenterPoint’s service area, we expect management to ultimately move forward with these investments.

The company recently announced new CFO Chris Foster, who held the same role at PG&E. He will replace Jason Wells, who was recently promoted to president positioning him well to transition to CEO when David Lesar retires.