CNP 1Q2018 Earnings (05/03/2018): We feel CNP is conservative; ENBL is sticky wicket; Vectren deal is good

Without sale of ENBL to fund Vectren Corp. (VVC) acquisition, VVC deal isn’t ST accretive, but we still like deal for MT-to-LT shareholder value
It’s now apparent that CNP doesn’t want to use ENBL to fund VCC deal, which is unfortunate. We’re apathetic re: internal spin of ENBL though curious as to purpose.
While CNP outperformed expectations for 1Q18, it’s keeping $1.50-$1.60 AEPS guidance for 2018E, which we feel is conservative
CNP’s almost $8B capital spending program forecasts 8.3% CAGR in rate base from 2017-to-2022, but earnings guidance for 2019-2020 is only 5%-7% CAGR. We believe CNP is being conservative
Appears that Enable Midstream Partners (ENBL) disposition would be through public market sales
With VVC deal we believe that CNP has made itself into a bigger target for all the right reasons, in our view
We believe demographics continue to provide tailwind. Dividend yield likely to stay strong too.

Continue Reading →

CNP buys Vectren (04/24/2018): More to deal than first glance; We like this deal; CNP attractive target

Factual Information presented by CNP as we understand them to be

CNP announced the acquisition of Vectren Corp. (VVC) yesterday morning for cash payment of some $72/share
Details of the financing are uncertain other than $2.5B in equity and equity-like issue prior to closing
Balance of the transaction of some $3.5B is expected to be financed through a combination of short-term and long-term debt, including commercial paper; specific maturities were not disclosed
Closing is expected sometime in 1Q2019
CNP expects the transaction to be slightly accretive starting in 2020
EPS guidance is unchanged with 2018 remaining at $1.50-$1.60 and growing 5%-7% through 2020

Our analysis of the transaction

We believe that this transaction is strategically astute and presents investors with potential for MT-to-LT performance higher than stand-alone CNP
Ultimately, we believe that CNP would monetize some or all of its 54.1% ownership interest in ENBL to not only repay some of its acquisition debt financing, but also potentially to buy back some or all of its $2.5B equity issuance that underlies the financing for the acquisition
Regardless, … .

Conclusion

We like this transaction and look-forward to accelerating guidance to the upside
Given our assumption for how the financing of the transaction is ultimately executed, we believe that CNP presents a compelling investment scenario, particularly given its roughly 4.4% dividend yield
While this acquisition may be consummated partly as a defensive measure, we believe that upon completion of the VVC deal, CNP may … .

Continue Reading →

CNP 4Q2017 Earnings (02/22/2018): We feel CNP is conservative; ENBL to be sold in pieces; upside coming

CNP’s new almost $8B capital spending program forecasts 8.3% CAGR in rate base from 2017-to-2022, but earnings guidance for 2019-2020 is only 5%-7% CAGR
We believe CNP is being conservative due to potential commodity price volatility from CES
Electric T&D spending is expected to be some $4.8B, leading to 7.8% CAGR in rate base for 2017-2022, while Natural Gas Distribution spending is forecast to be about $3.2B over next 5 years, leading to some 9.2% CAGR in rate base
Bailey-to-Jones transmission looks like it’s a go for mid-2021 CDO
While we tweaked down our ST-Target to $37 from $39, our NIV/share rose to $63 from $58 and we increased our estimates
Appears that Enable Midstream Partners (ENBL) disposition would be through public market sales
We believe demographics continue to provide tailwind. Dividend yield likely to stay strong too.

Continue Reading →

2018 Industry Update: Economic growth should favor commodities-driven businesses in 2018

Warmer than normal winter:
Weak gas prices:
However, 4Q2017 and 1Q2018 power gross profit could be better than expectations:
Similarly, we’d expect natural gas infrastructure businesses to perform well for 4Q2017 and 1Q2018:
We expect economic growth to surpass 4% for 2018:
Strong economic performance should lead to strong power sector performance:
Commensurately, we expect natural gas infrastructure businesses to perform well:
Adjusted for seasonality, we expect natural gas prices to creep up throughout 2018 and, given normal weather, we’d expect natural gas prices to average at or just below $3.50 for 2018 with an exit price of some $3.65-$3.75:
Conclusion: Going into 2018, we believe that natural gas prices will stage a moderate recovery, but power margins should do better benefiting from accelerating economic activity. Individually, we continue to like… . However, the real star may be … . Among the utility names, we like … due to their growth prospects. We also look for … to outperform as … .

Continue Reading →

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.

Continue Reading →