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CenterPoint Energy’s 5-Year Capex Plan Reflects 18% Rise


CenterPoint Energy, Inc. CNP recently unveiled capital expenditure plan for 2018-2022 time period, wherein the energy provider plans to invest $8.3 billion. Notably, this represents 18% growth from the prior five-year plan (2017-2021).

Details of the Capex Plan

CenterPoint Energy aims to spend $1.66 billion in 2018, and almost the same amount in each of the following four years.

Per management, solid growth, reliability and grid strengthening duly witnessed in operations enhanced the capital expenditure.

The projected capital plan incorporates the Freeport transmission project worth $250 million that has been approved by the Electric Reliability Council of Texas, last month. CenterPoint Energy expects a decision from the Texas Public Utility Commission on the project in 2019.

How Will CenterPoint Energy Benefit?

The Utility sector is a fundamentally capital-intensive sector, where in service providers need to focus on strengthening their transmission and distribution lines. Since Center point Energy provides both electricity as well as natural gas, the company has to spend a lot for upgrading and strengthening its existing infrastructure, like replacing old distribution lines and repairing old gas pipelines.

To withstand severe weather conditions as well utilities have to keep their transmission and distribution systems upgraded. During third-quarter 2017 earnings call, the company hinted at increasing its next five-year capital expenditure for both electric as well as gas distribution businesses. The latest investment plan worth $8.3 billion duly reflects the company’s commitment toward offering improved and safe utility services to customers.

With increasing demand for utility services, we believe this enhanced capital spending plan will attract more customers to take up the utility services those CenterPoint Energy provides, which in turn will add on to the company’s profitability.

Moreover, last week the company issued an updated 2017 guidance hinting at an improvement in its full-year earnings. Therefore, it is reasonable to deduce that the solid capital investments that CenterPoint Energy has made so far got duly payed off in terms of the company’s improved bottom-line guidance. The latest investment plan can also be expected to provide further impetus to CenterPoint Energy’s bottom-line growth.

Price Movement

CenterPoint Energy’s stock has moved up about 12% over a year compared with the broader industry’s gain of 5.4%. This outperformance must have been led by significant customer growth as well as investments to upgrade infrastructure.

Zacks Rank & Key Picks

CenterPoint Energy carries a Zacks Rank #3 (Hold).

Investors interested in the same space can consider some better-ranked stocks such as FirstEnergy Corporation FE, PPL Corporation PPL and DTE Energy Company DTE , all of which carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

FirstEnergy posted positive average earnings surprise of 4.67% in the trailing four quarters. Additionally, its current-year estimates have increased by 4 cents to $3 per share in the last 60 days.

PPL delivered positive average earnings surprise of 6.26% in the last four quarters. Additionally, its current-year estimates have increased by a penny to $2.18 per share in the last 60 days.

DTE Energy posted positive average earnings surprise of 3.81% in the trailing four quarters. The company has a solid long-term earnings growth rate of 6%.

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