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Market Price (5/5/2017): $28.05/share; ST-Target: $35/share; NIV: $51/share
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.