CenterPoint Energy a Great Value Buy
Jordo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Even with the volatile oil and gas market, there are still some great values for investors in this sector. CenterPoint Energy (NYSE: CNP) has had strong earnings of late, with estimates of continued earnings per share growth over the next year. In this article, I will discuss why CenterPoint could prove to be profitable for investors for the rest of 2012 and throughout 2013.
Analyzing the Fundamentals
The news for CenterPoint Energy is bright in terms of potential investor profit through growth. CenterPoint has a market capitalization of nearly $8.75 billion with a 12-month income of $776 million. Operating as a public utility holding company, CenterPoint has a P/E ratio of just below 12, which is above the average utilities industry P/E of 6.6, although it is well below the S&P 500 P/E ratio of 17.7.
With second quarter 2012 revenue of $1.87 billion, the firm's quarterly earnings of $0.27 beat estimates by $0.02. Given this, the company's 2012 annual earnings per share estimate has been raised from between $1.08 and $1.20 to between $1.13 and $1.23.
CenterPoint's second quarter 2012 profit was over $125 million, or 29 cents per share. The company's 2011 first quarter profit was under $119 million, or 28 cents per share. With a $0.81 dividend, the company's investors are pulling in a yield of just under 4% - which I feel is very respectable, especially given the prospects for share growth.
While CenterPoint's actual sales growth has slowed in the second quarter of 2012, versus the same quarter in 2011, its income growth is up over 74%, giving the company a net profit margin in excess of 10%. One big reason for the jump in income could be due to the excessively hot summer weather nationwide, prompting a higher need for electric transmission of air cooling units. The company also benefited from the ongoing recognition of deferred equity returns that were associated with the firm's recovery of true-up proceeds, as well as an increase in miscellaneous revenues that were due in large part from grants of right-of-way easements.
CenterPoint recently purchased $275 million of natural gas and processing assets from Martin Midstream Partners L.P. This purchase included a 50% operating interest in the Waskom Gas Processing Company, as well as the Woodlawn gas processing plant and gathering system. The company's earnings growth is estimated to excel even further due to these asset purchases.
Are Other Energy Companies Charged for Growth?
SandRidge Energy (NYSE: SD) holds oil and gas reserves for itself as well as for other oil and natural gas companies. Recently, the company reported that it had estimated reserves of 1,312.2 Bcfe, of which just over 50% is in natural gas. Even though SandRidge does not pay a dividend, investors have been well rewarded with the company's share growth. Even though oil and natural gas prices have declined from previous highs, SandRidge is expected to maintain its forward momentum with an estimated earnings per share of $0.23 for 2013, versus $0.13 for 2012. In addition, the firm's president and other upper management have come up with a three year plan of achieving $2 billion in EBITDA by 2014.
Another potential winner in the oil and gas sector is American Electric Power (NYSE: AEP). There is good news on the horizon for American Electric. The company recently received an order from the Ohio Public Utilities Commission with regard to its modified Electric Security Plan. This helped in an upgrade of the shares by analysts at Bank of America/Merrill Lynch and ISI.
Apache (NYSE: APA) is also a good contender for investors seeking oil and gas shares for portfolio growth. This company has a long history of using a balanced management style. This has resulted in Apache taking on far less debt than many of its counterparts in the sector, keeping its expenses at far less than its incoming cash flow. This has resulted in the company achieving annualized production of approximately 13% for the past two decades. It is estimated that for 2012, Apache will post profits of over $10 per share and a 4.5% rise in sales growth.
For some companies in this sector, though, the news is not as positive. FirstEnergy (NYSE: FE) has recently announced that it had a decline in profits of 8% in the second quarter of 2012 due in large part from lower revenue at the company's regulated distribution segment. In addition, FirstEnergy accumulated lower sales margins from its competitive operations as well as its increased expenses from depreciation. FirstEnergy also posted a reduced amount of income from its investments. Based on these factors, the firm has recently lowered its quarterly per share earnings estimate to $0.59 from its previous $0.69 per share. The company's 2012 fiscal earnings have also recently been lowered to $3.30 per share from $3.60 per share.
The Bottom Line
There are a number of strengths that make CenterPoint a sensible investment – starting with the increase in its net income over the past year, along with its nice return on equity, increasing profit margins, and growth in its earnings per share.
For investors seeking steady growth, I feel that CenterPoint can provide that in both the short and long-term. The company's earnings are up almost 6% year-to-date, along with profits, prompting a rise in annual per share earnings estimates. In addition, the purchase of more gas gathering and processing assets – along with an interest in a gas processing plant and gathering system – are projected to further increase the company's earnings and likely reward investors with increased share prices.
jordobivona has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.