Entergy Earnings: Core Growth on Track Despite Weather Volatility; Remains a Top Utilities Pick

We are reaffirming our $120 fair value estimate for Entergy ETR after the company reported earnings per share of $1.84 on an adjusted basis for the second quarter, up from $1.78 in the year-ago quarter. Results are on track to meet our full-year outlook. We are reaffirming our narrow moat rating.

Weather impacts on Entergy’s system electricity demand and earnings have swung from a large benefit in 2022 to a large drag in 2023, obscuring the company’s fundamental earnings growth. Normalizing weather impacts in both years would have resulted in a 13% increase in first-half earnings this year.

We expect warm summer weather to offset some of the first-half weather drag, keeping core earnings on track to grow at least 7% this year. Management reaffirmed its $6.55-$6.85 EPS guidance, in line with our outlook.

Entergy trades at a 16% discount to our fair value estimate, making it one of the cheapest U.S. utilities we cover. Its 4.2% dividend yield is one of the highest in the sector, and its 16 P/E is below the utilities sector median 18 P/E. 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. We think Entergy is one of only a few utilities that offers attractive yield, growth, and potential valuation upside.

Entergy’s investments at its Southeast utilities remain the primary growth driver. Customer rate increases drove higher net revenue, partially offset by higher depreciation, taxes, and interest costs, as we expected.

Entergy’s core electricity demand continues to grow, supporting its $16 billion infrastructure investment plan in 2023-25. Industrial and residential customer counts are up 1% this year.

We think Entergy might add to its capital investment plan beyond 2025 and maintain 7% annual earnings growth based on its opportunities to invest in renewable energy, hydrogen, and industrial electrification in the Southeast.