On Tuesday, BMO Capital Markets maintained a Market Perform rating on shares of CenterPoint Energy (NYSE:CNP) but increased the price target to $34 from $30. The adjustment follows a recent settlement agreement related to a gas rate case with the Minnesota Public Utilities Commission (MPUC).
The agreement, filed by CenterPoint Energy's subsidiary, CERC, and the settling parties, would allow for a two-step rate increase. The company is set to receive approximately $60.8 million in 2024 and an additional $42.7 million in 2025. This increment represents around 76% of the relief initially requested by the company, including expenditures for cloud-related investments.
The settlement suggests a cost of capital at 7.07%, which is lower than the 7.52% CenterPoint Energy had sought. This figure is based on a 52.49% equity layer and a 10.30% return on equity (ROE). Despite the favorable terms of the settlement, BMO Capital Markets decided to keep its Market Perform stance on the stock.
In a statement, the analyst from BMO Capital Markets noted the changes to the market-to-market (MTM) sum-of-the-parts (SOTP) target price, which now stands at $34. This reflects the anticipated increase in revenue following the settlement and the revised cost of capital as proposed in the agreement.
In other recent news, CenterPoint Energy has been under the spotlight following its Q3 2024 earnings report and regulatory developments. The company reported Q3 earnings per share of $0.31, meeting consensus estimates, and reiterated its 2024 guidance range of $1.61 to $1.63. Furthermore, CenterPoint Energy initiated its 2025 non-GAAP EPS guidance at $1.74 to $1.76 per share, indicating an 8% growth from 2024.
The company has also been the focus of analyst attention, with both Mizuho (NYSE:MFG) Securities and Scotiabank (TSX:BNS) raising their price targets to $30. Mizuho maintained a neutral stance on the company's shares, following recent regulatory filings and developments with the Public Utility Commission of Texas (PUCT).
Scotiabank, on the other hand, maintained a sector perform rating, acknowledging the company's strong operational and financial performance despite challenges such as Hurricane Beryl.
In other company news, CenterPoint Energy has submitted a filing to the PUCT to resume settlement discussions related to the Houston Electric rate case and to recoup approximately $450 million in costs from the May Derecho storm. This decision, seen as a significant concession, is anticipated to be approved by the PUCT.
Lastly, CenterPoint Energy has planned a $4.9 billion investment for 2025, contributing to a 10-year capital plan of $47 billion. This investment is expected to support significant organic growth in Texas, particularly in the Greater Houston area, where a 30% increase in peak load is projected by 2030. These are among the recent developments for CenterPoint Energy.
InvestingPro Insights
CenterPoint Energy's recent settlement agreement with the Minnesota Public Utilities Commission aligns with several key insights from InvestingPro. The company's ability to secure rate increases for 2024 and 2025 supports its financial stability, as reflected in InvestingPro data showing a market capitalization of $21.2 billion and a P/E ratio of 21.59.
An InvestingPro Tip highlights that CenterPoint Energy has maintained dividend payments for 54 consecutive years, underscoring its commitment to shareholder returns even as it navigates regulatory challenges. This consistency is particularly noteworthy given the recent rate case settlement, which may contribute to the company's ability to sustain its dividend policy.
Another relevant InvestingPro Tip indicates that the stock is trading near its 52-week high, with a strong return over the last three months. This performance aligns with the positive outcome of the rate case and BMO Capital Markets' increased price target. The stock's 3-month price total return of 20.31% further corroborates this upward trend.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and insights that could provide valuable context to CenterPoint Energy's financial outlook and market position.
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