CNP 3Q2017: Predictability, stability, reliability, and flexibility, the CNP way

Raising ST-Target to $39 from $36 and NIV/share to $58 from $55 on 3Q2017 results and 2017 guidance
CNP believes it will finish year at or around high-end of its guidance, which reaffirms our belief CNP will perform at higher end of 2017E AEPS guidance, if not above, and we concur with CNP that it will perform at higher end or even above its targeted 4%-6% CAGR in AEPS thru 2018
We agree with Enable Midstream Partners (ENBL) divestiture and chosen sale method seems to be for stock, although we’d prefer cash and redeployment into a transformative acquisition even with the tax burden given bargain basement asset prices
However, stock transaction for ENBL tells us CNP prefers to continuously invest in CNP and buyer’s stock would be used as equity financing for organic expansion
We maintain CNP is best owner of Oncor, but now CNP has BIG target on its back
Wouldn’t surprise us if CNP delved back into pipelines, but strictly pipelines only
We like new tranny project into Freeport, TX, but await approval and more details before modeling.

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CNP 2Q2017 Earnings: Fate of ENBL decided, CNP looks forward to utility strength

Fate of ENBL decided, CNP looks forward to utility strength || Raising ST-Target to $36 from $35 and NIV/share to $55 from $51 on 2Q2017 results which reaffirms our belief CNP will perform at higher end of 2017E AEPS guidance, if not above it, and our concurrence with management that CNP will perform at higher end or even above its targeted 4%-6% CAGR in AEPS thru 2018. We agree with divestiture of Enable Midstream Partners (ENBL) and chosen disposition method seems to be for stock, although we’d prefer cash. We continue to believe CNP is best owner of Oncor but no movement from CNP. Transaction for stock on ENBL indicates to us continued steady investment in CNP and buyer’s stock would be used as equity financing for internal expansion. We note this is a conservative strategy but doesn’t preclude major strategic initiatives, just that there’s none on the plate in the foreseeable future. Wouldn’t surprise us if CNP delved back into pipeline business at a later date, but strictly pipelines only. We continue to support CNP’s commitment to natural gas retail services. We’re pleasantly surprised to see CNP continue to guide higher in 2017 and 2018. We believe demographics continue to provide tailwind and new Washington policies are likely to provide additional uplift. Dividend yield likely to stay strong too. We like new tranny project into Freeport, TX.

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CNP 1Q2017 Earnings Note

Lower-risk but not necessarily lower return; continues to perform well ||
Raising our ST-Target to $35 from $34 and our NIV/share to $51 from $50 on 1Q2017 results which reaffirms our belief that CNP will perform at higher end of 2017E AEPS guidance, if not above it, and our concurrence with management that CNP will perform at higher end or even above its targeted 4%-6% CAGR in AEPS through 2018. We agree with divestiture of Enable Midstream Partners (ENBL); CNP expects to provide more color at or before 2Q17 earnings call. ENBL disposition is likely dilutive, but lowers risk, which increases multiple, and proper redeployment of capital could make-up for dilution, in our opinion. But, selling for stock is irrational in terms of its risk profile, so we prefer cash sale even with tax consequences. But we are no longer certain that CNP is serious about divesting ENBL. Wouldn’t surprise us if CNP delved back into pipeline business with proceeds from ENBL sale. Acquisition of Continuum signals serious commitment to Energy Services, and we’re not necessarily opposed to this modification in strategy. We’re pleasantly surprised to see CNP guiding higher in 2017 and 2018. We believe demographics continue to provide tailwind and new Washington policies will provide additional uplift. Dividend yield likely to stay strong as well. We like the new tranny project into Freeport, TX.

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CNP 2017 AEPS Guidance range of $1.25-$1.33 in-line with our expectations

2017 AEPS Guidance range of $1.25-$1.33 in-line with our expectations ||

Company provides 2017 AEPS guidance of $1.25-$1.33 vs. our conservative estimate of some $1.26 and consensus of about $1.25
Also provides capital spending guidance of some $1.5B vs. our estimate of about $1.43B
Houston Electric: $922MM
Gas Distribution: $534MM
Other: About $44MM (our assumption based on $1.5B total 2017 capex guidance)
Total: $1,500MM
2017 guidance includes a 54.1% interest in Enable Midstream partners
CNP is expecting to hold its 4Q2016 earnings call on February 28, 2017 at 11AM EST
Analyses & Conclusion:

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CNP 4Q2016 Earnings Note

Lower-risk but not necessarily lower return; continues to perform well ||

Raising our ST-Target to $34 from $28 and our NIV/share to $50 from $44 on our belief that CNP will perform at the higher end of 2017E AEPS and our concurrence with management that CNP will perform at the higher end or even above its targeted 4%-6% CAGR in AEPS in 2018. We agree with divestiture of Enable Midstream Partners (ENBL), and CNP gave OGE a 60-day right of first offer (ROFO) notice. We were mistaken about OGE taking advantage of its ROFO; appears CNP is still looking at 3rd-parties. Disposition of ENBL is likely dilutive, but lowers risk, which increases multiple, and proper redeployment of capital could make-up for the dilution, in our opinion. However, selling for stock makes little sense in terms of its risk profile, so we prefer sale for cash even with a tax consequence. It would not surprise us to see CNP delve back into pipeline business with proceeds from ENBL sale. Acquisition of Continuum isn’t dazzling us but signals serious commitment to Energy Services, and we’re not necessarily opposed to this modification in strategy. We are pleasantly surprised to see CNP guiding higher in 2017 and 2018. We believe that demographics continue to provide a tailwind and new Washington policies will provide additional uplift. Dividend yield likely to stay strong as well.

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CNP 4Q2016 Earnings Quick Note

Lower-risk but not necessarily lower return; continues to perform well ||

Note: Please note that due to 5 companies (NRG, CNP, PNM, LNG, SRE) reporting on one day, we will be writing Quick Notes for all of the companies reporting today followed by full notes later in the week

Maintaining 2017E AEPS guidance of $1.25-$1.33 and 4%-6% CAGR in AEPS through 2021
2017E Net income break-down: Utilities: $0.93-$0.97 and Mid-stream $0.31-$0.37 of which some $50MM in operating income is expected to be achieved from Energy Services
However, guiding 2018E AEPS to achieve upper-end or to exceed 4%-6% from 2017 actual
Assuming mid-point of 2017E guidance of some $1.29 and 6% growth in AEPS in 2018, this would place 2018E AEPS at some $1.37, close to our current estimate of $1.36 vs. consensus of $1.28
Achieved 4Q2016 AEPS of $0.26 vs. our and consensus estimate of $0.28
Going forward, CNP is expected to be a full cash tax payee
2017 and 2018 earnings power looks to be coming from not just regulatory filings at the utilities but also from demographics and Enable as well
Strategic initiative on Enable progressing slowly:

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CNP 3Q2016 Earnings Note

CNP going through transformation that could be value-add ||

Raising our NIV/share to $40 from $36. We agree with divestiture of CNP’s stake in Enable Midstream Partners (ENBL), and CNP gave OGE a 60-day right of first offer (ROFO) notice. We believe OGE would take advantage of the ROFO, and we believe that CNP would accept. Although timing is poor, CNP would sell cheap but also have opportunity to buy cheap. Disposition of ENBL is likely to be dilutive, but lowers risk, which increases multiple, and proper redeployment of capital could make-up for the dilution, in our opinion. It would not surprise us to see CNP delve back into pipeline business with proceeds from ENBL sale. CNP appears to be open to doing stock deal for ENBL, but we’re not sure that would change anything strategically. However, we do not want to see ENBL proceeds go towards share repurchases. We strongly agree with decision not to convert its Texas T&D assets to a REIT. Acquisition of Continuum isn’t dazzling us but signals serious commitment to Energy Services, and we’re not necessarily opposed to this modification in strategy. However, lack of strong utility and other regulated growth projects hamper CNP’s valuations, in our opinion, despite a healthy dividend yield. However, we believe CNP’s targeted CAGR in AEPS of 4%-6% is well within sight and may take a boost with Continuum and redeployment of capital from sale of ENBL. Demographics continue to provide a tailwind.

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CNP Acquisition of Atmos Energy Marketing (AEM) is value-add by some $3.50/share given unit acquisition cost of $0.10/MCF/Year

Acquisition of Atmos Energy Marketing (AEM) is value-add by some $3.50/share given unit acquisition cost of $0.10/MCF/Year ||

CNP announced acquisition of Atmos Energy Marketing’s (AEM), retail commercial and industrial gas services business for $40MM
Purchase price of $40MM
Expands presence to 32 states from 26 states
Throughput volume is estimated at some 0.4TCF/Year
Combined with CNP’s existing Energy Services business, total throughput volume increases to about 1.0TCF/Year
Post-close customers would number some 33,000 commercial and industrial (C&I) and 65,000 individual Choice retail customers
Transaction is expected to close early 2017
Deal financing is expected from cash on hand, operating cash flow, or short-term borrowings
Analysis:
Unit purchase price is estimated at some $0.10/MCF/Year

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CNP 2Q2016 Earnings Note

We expect ENBL sale for cash to spur strategic redirection and growth ||

Raising our NIV/share to $40 from $36. We agree with divestiture of CNP’s stake in Enable Midstream Partners (ENBL), and CNP gave OGE a 60-day right of first offer (ROFO) notice. We believe OGE would take advantage of the ROFO, and we believe that CNP would accept. Although timing is poor, CNP would sell cheap but also have opportunity to buy cheap. Disposition of ENBL is likely to be dilutive, but lowers risk, which increases multiple, and proper redeployment of capital could make-up for the dilution, in our opinion. It would not surprise us to see CNP delve back into pipeline business with proceeds from ENBL sale. CNP appears to be open to doing stock deal for ENBL, but we’re not sure that would change anything strategically. However, we do not want to see ENBL proceeds go towards share repurchases. We strongly agree with decision not to convert its Texas T&D assets to a REIT. Acquisition of Continuum isn’t dazzling us but signals serious commitment to Energy Services, and we’re not necessarily opposed to this modification in strategy. However, lack of strong utility and other regulated growth projects hamper CNP’s valuations, in our opinion, despite a healthy dividend yield. However, we believe CNP’s targeted CAGR in AEPS of 4%-6% is well within sight and may take a boost with Continuum and redeployment of capital from sale of ENBL. Demographics continue to provide a tailwind.

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CNP: Hunt withdraws from Oncor bid; opportunity for CNP

Unsurprisingly, Hunt has withdrawn its current offer for Oncor
Equally predictable was that much of Hunt’s decision to withdraw its offer had to do with PUCT’s determination to share tax savings more equitably between investors and Oncor customers
It seems that Hunt is willing to resubmit its bid for Oncor that would be viewed by all as a more fair and just sharing of the tax benefits
We would assume that if the new bid includes more sharing of tax benefits, by definition, the price offered would be lower
Regardless, we believe that this opens up an opportunity for CNP to enter the fray

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