CenterPoint Energy Gets Grant - Analyst Blog

CenterPoint Energy Inc.’s (CNP) electric transmission and distribution subsidiary, CenterPoint Energy Houston Electric, LLC, has signed an agreement with the U.S. Department of Energy (DOE) for a $200 million stimulus grant for its advanced metering system and intelligent grid projects.
 
The agreement is the culmination of negotiations that began in November 2009 after the DOE selected CenterPoint Energy as one of the six utilities to receive the maximum smart grid grant under the American Recovery & Reinvestment Act.
 
CenterPoint Energy plans to spend $4.1 billion in the next four years (2010 – 2013) focusing mainly on upgrading its electricity and natural gas distribution system and generation assets through projects like the advanced metering system.
 
The $150 million grant will help accelerate its current installation of smart electric meters and associated equipment that comprise its Advanced Metering System (AMS). The balance $50 million will be used to begin a self-healing Intelligent Grid that utilizes the AMS and other technologies to improve operational efficiency and power reliability in greater Houston.
 
Since March 2009, CenterPoint Energy Houston Electric has installed more than 267,000 smart meters and the grant will help complete the installation of over 2 million smart meters, along with the necessary communications infrastructure and computing systems, in 2012 rather than 2014 as originally planned.  The initial Intelligent Grid deployment is expected to be completed in 2013.
 
CenterPoint Energy’s stable and regulated electric power operations and gas distribution utilities generate a relatively stable and growing earnings stream. This is complimented by its expanding pipeline network, expansion of pipeline capacity, rate base growth and gas well connections.
 
However, CenterPoint Energy’s balance sheet remains stretched, with the debt-to-capitalization ratio at a high 77.6% after the end of fiscal 2009. The debt-laden company with more than three times debt over its equity however, has a low interest coverage ratio of approximately 2 at fiscal-end 2009.
 
CenterPoint Energy is a domestic energy delivery company that includes electricity transmission and distribution, natural gas distribution and sales, interstate pipeline and gathering operations. It serves customers in Arkansas, Illinois, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Oklahoma, Texas and Wisconsin.
 
Going forward, CenterPoint offers investors stable earnings from its regulated electric and gas transmission and distribution operations with an above average dividend yield compared to the industry.
 
Compared to its peers like Integrys Energy Group Inc. (TEG), Pepco Holdings Inc. (POM), NRG Energy Inc. (NRG) and PPL Corporation (PPL) – CenterPoint Energy is trading at a discount based on forward earnings estimates.
 
The bullish outlook on CenterPoint Energy, however, would be offset by pending regulatory cases, commodity risk from its competitive natural gas segment and a weak balance sheet, which remain areas of concern. Thus, we maintain our market Neutral recommendation on the stock.
Read the full analyst report on "CNP"
Read the full analyst report on "TEG"
Read the full analyst report on "POM"
Read the full analyst report on "NRG"
Read the full analyst report on "PPL"
Zacks Investment Research