We have maintained our Neutral recommendation on
) on May 9, 2013 based on its year-over-year improvement in first
quarter 2013 earnings and planned investments in infrastructure.
Volatile commodity prices however pose a threat. The company
currently has a Zacks Rank #2 (Buy).
Why the Reiteration?
Entergy Corporation posted first quarter 2013 earnings in line
with our expectation, while missing on revenues. However, the
company experienced a significant year-over-year improvement in
its results driven by major generation investments in 2012. Total
operating expenses during the quarter were 2,214.8 million, down
from $2,440.5 million in the prior-year period.
Entergy's nuclear fleet, along with its complementary and
flexible fossil and hydro fleet, gives the company a distinct
generation cost advantage over its fossil-fuel based competitors.
The company also plans to invest $6.7 billion over the three-year
period from 2013 to 2015. Of this, only $3.3 billion will be for
maintenance while the rest will go towards new capital projects.
This will significantly boost the asset base of the company while
raising the rate base.
Moreover, Entergy's geographically-diverse mix of regulated and
merchant operations insulates the company from regulatory
bottlenecks and power-price volatility in a particular region.
Recently, Entergy Gulf States Louisiana, L.L.C. entered into a
30-year contract with
) for the supply of up to 200 megawatts of additional power to
Sempra Energy's proposed Cameron LNG liquefaction project in
The company is also making steady progress to spin off its
electric-transmission business and merge the operation with
ITC Holdings Corporation
). Besides contributing to earnings, this transaction would allow
the company to focus more on its generation and distribution
Entergy focuses on maximizing shareholder value through share
repurchases and incremental dividend. In fact, the company is
planning capital deployment through dividends and share
repurchases of as much as $4 billion through 2010 to 2014.
Despite these positives we remain concerned about tepid growth at
the company's competitive business on account of lukewarm power
demand in the Northeast, the fate of its Indian Point plant with
respect to its re-licensing and volatile commodity prices.
Other Stocks to Consider
) also looks good in the space carrying a Zacks Rank #2 (Buy).
ALLETE INC (ALE): Free Stock Analysis Report
ENTERGY CORP (ETR): Free Stock Analysis
ITC HOLDINGS CP (ITC): Free Stock Analysis
SEMPRA ENERGY (SRE): Free Stock Analysis
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