We have maintained our Neutral recommendation on
CenterPoint Energy, Inc.
) on May 28, 2013. CenterPoint displayed improved year-over-year
performance, ongoing infrastructure development projects and
major deals & agreements. However, these positive factors
will be challenged by a tepid economy and volatility in wholesale
natural gas prices. The company currently has a Zacks Rank
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Why the Reiteration?
The top line of CenterPoint Energy beat the Zacks Consensus
Estimate in its first quarter. Indeed, both the top and the
bottom line improved on an annualized basis due to the
performance of the regulated gas distribution unit and the
competitive natural gas sales and services unit. The company's
stable and regulated electric power operations and gas
distribution utilities generate a relatively stable and growing
Moreover, the company's diversified service territory spread
across six states insulates the company from individual state
specific risks. This is complemented by its expanding pipeline
network, the expansion of its pipeline capacity, rate base growth
and gas well connections.
CenterPoint Energy plans to spend approximately $6.8 billion
between 2013 and 2017, focusing mainly on upgrading its
electricity and natural gas distribution system and generation
assets through projects such as the advanced metering system and
intelligent grid. For its gas gathering business, the company
tends to enter into long-term contracts with volume commitments
and acreage dedication, which insulates the company's margins
from volatility in gas prices and a lower level of drilling
In May this year, CenterPoint Energy inked a long-term midstream
deal with an affiliate of the U.S. energy behemoth,
). The long-term midstream deal with ExxonMobil will unlock
significant growth opportunities for CenterPoint and allow it to
diversify its product gathering capabilities and geographic
Again, the master limited partnership with
OGE Energy Corp.
) and ArcLight Capital Partners will allow CenterPoint to realize
the benefits of the partnership's enhanced scale, broad
geographic reach and expanded capabilities.
Despite these positives, pending regulatory cases, the tepid
economy, lower demand for electricity, volatility in wholesale
natural gas prices and a significant presence in a hurricane
prone section of the U.S. compel us to remain on the sidelines.
Stocks to Consider
In the near term, we would advise investors to accumulate its
short-term Zacks Rank #2 (Buy) peer
CPFL Energia S.A.