CenterPoint Energy
A regulated wires-and-gas franchise riding Houston’s demand surge, but with storm and dilution overhangs
This is a pure‑play regulated utility with two anchors: a monopoly electric T&D franchise in the fast‑growing Houston metro and an Indiana electric and multi‑state gas LDC footprint.
Management has extended its growth runway with a customer‑driven capital plan of about 65 billion dollars for 2026‑2035 and targets 7 to 9 percent non‑GAAP EPS growth through 2035, supported by forecast peak‑load growth of roughly 50 percent by 2031 and potentially a doubling by the mid‑2030s.
Recent non‑GAAP EPS on a trailing four‑quarter basis sums to about 1.72 per share, and 2025‑2026 guidance points to continued mid‑single‑digit to high‑single‑digit growth as large programs move into rate base.
The quality of the franchise is tempered by structural negative free cash flow from heavy capex, periodic equity issuance, and elevated climate and regulatory scrutiny in Texas after major storms.
FFO to debt is around the mid‑teens, consistent with BBB/Baa2 ratings and a recent S&P outlook improvement to stable after securitization and portfolio actions. On valuation, TTM free cash flow is negative and not a meaningful yardstick; earnings power is steadier.
We think a fair multiple on TTM adjusted EPS is about 19x given the growth runway and regulatory risk, implying a fair value in the low 30s per share and an attractive accumulation range in the high 20s to around 30.
Does CenterPoint Energy have a strong competitive moat?
Economic moat assessment by component and weight. Efficient scale/regulatory franchise (weight 45 percent, score 90): wires and gas LDCs are natural monopolies with returns set by regulators; Houston Electric’s T&D network is non‑replicable and benefits from one of the strongest long‑term load growth outlooks in the US.
Indiana electric remains vertically integrated with a defined IRP path and multi‑decade service obligations. Switching costs/regulatory switching barriers (weight 25 percent, score 88): end‑customers cannot readily switch distributors; regulatory processes govern service territory and rates.
Texas resiliency mechanisms and securitization further anchor cost recovery, though political pressure can alter timing and scope. Cost advantage (weight 15 percent, score 60): scale and density in Houston (2.8 million+ meters) yield operating leverage, but allowed ROE caps upside and inflation/interest costs offset some benefits.
Intangibles/brand (weight 10 percent, score 35): brand contributes little to pricing; most value stems from regulated assets. Network effects (weight 5 percent, score 10): minimal.
Weighted result is approximately 82. Moat durability risks: extreme weather in the Gulf Coast, regulatory pushback in rate cases, and distributed resources shifting load profiles. Recent settlements and securitizations mitigate but do not eliminate these risks.
Does CenterPoint Energy have pricing power in its industry?
Pricing is fundamentally set by regulators; the company cannot raise prices at will. That said, CenterPoint’s capital plan is largely recovered through base rates and various riders/trackers, and Texas approved securitization for storm costs to smooth customer impacts.
Long‑term EPS guidance of 7‑9 percent reflects ongoing rate base growth rather than discretionary pricing power. Texas resiliency settlements include an allowed return (about 9.65 percent noted in local reporting) but also demonstrate political sensitivity around affordability.
How predictable is CenterPoint Energy's business?
Revenue and earnings are predominantly regulated and recurring.
Management reiterated a 2025 non‑GAAP EPS range of 1.75‑1.77 and initiated 2026 at 1.89‑1.91 with a 7‑9 percent long‑term growth target to 2035. TTM non‑GAAP EPS across Q4‑24 to Q3‑25 totals about 1.72. Load growth visibility in Houston (about 50 percent by 2031 and potential doubling by mid‑2030s) and an expanding capital plan support steady growth.
Predictability is reduced by weather normalization, storm frequency, interest‑rate sensitivity, and periodic rate case timing.
Is CenterPoint Energy financially strong?
Credit profile is investment grade (Moody’s Baa2, S&P BBB; S&P outlook recently revised to stable) with FFO/debt guided to remain above downgrade thresholds (about 12 percent), aided by securitization and a planned mix of debt, modest equity and asset recycling.
However, structural negative free cash flow from heavy capex persists; for the nine months ended Sep 30, 2025, operating cash flow was about 1.7 billion dollars against 3.4 billion in capex, and the trailing four quarters of free cash flow are meaningfully negative. Net debt sits in the low‑20 billions range on an EV basis.
Storms remain a liquidity and reputational risk, though approved system restoration securitizations and settlements reduce near‑term pressure.
How effective is CenterPoint Energy's capital allocation strategy?
Management is focusing the portfolio and recycling capital: completed sale of Louisiana and Mississippi gas LDCs in April 2025 and announced sale of Ohio gas to National Fuel (expected close Q4 2026). These moves redeploy capital to higher‑growth or lower‑lag jurisdictions and support the long‑term capex plan.
Dividend growth aligns with earnings growth, with a quarterly dividend of 0.22 per share as of late 2024. Offsetting positives, the company issued equity via a May 2025 forward common offering and disclosed additional equity needs through 2035, which dampens per‑share compounding.
Acquisition risk is limited; growth is predominantly organic via rate base.
Does CenterPoint Energy have high-quality management?
CEO Jason P. Wells (former CFO and COO) took the helm in January 2024 and has maintained a disciplined long‑term growth framework with frequent transparency on guidance and capital needs. The team secured storm cost recovery via securitization and reached a Houston rate case settlement that balanced affordability with ongoing investment.
Execution on the Indiana generation transition and Texas resiliency programs will be key tests. Governance structures and emergency preparedness have been strengthened after 2024 storms, but political scrutiny remains high.
Is CenterPoint Energy a quality company?
CenterPoint Energy is a good quality company with a quality score of 74/100
- Local monopoly with efficient‑scale moat in Houston T&D and constructive jurisdictions in Indiana and Minnesota; long runway from electrification, industrial load and data centers driving 50 percent peak‑load growth by 2031.
- Record 10‑year capital plan of about 65 billion dollars through 2035 with limited equity needs disclosed (~4 billion over 2028‑2035) and continued use of securitization and trackers to reduce lag.
- TTM adjusted EPS about 1.72 per share (Q4‑24 to Q3‑25), with 2025 guidance of 1.75‑1.77 and 2026 of 1.89‑1.91 supporting 7‑9 percent long‑term EPS CAGR.
- Storm risk and political scrutiny remain material; Texas approved securitization for 2024‑2025 storms and a compromise resiliency plan, but execution and rate affordability will be watched.
- Structural negative FCF from growth capex and periodic equity issuance (for example, the May 2025 forward common offering) dilute per‑share compounding; balance sheet remains investment grade with FFO/debt about 12‑14 percent.
What is the fair value of CenterPoint Energy stock?
Is CenterPoint Energy a good investment at $40?
The following analysis is provided for informational and educational purposes only. It does not constitute financial advice, investment advice, or a recommendation to buy or sell any security. The opinions expressed are based on publicly available information and historical data. Beanvest and its contributors may hold positions in the securities mentioned. Investors should conduct their own due diligence or consult a licensed financial advisor before making any investment decision.