10-year

10-Year Anniversary Promotion (20% off)

Join GuruFocus Premium Membership Now for Only $279/Year

Once a decade discount

Save up to $500 on Global Membership.

Don't Miss It !

Free 7-day Trial
All Articles and Columns »

Sell CenterPoint Energy Now

March 05, 2012 | About:
CenterPoint Energy (CNP) provides electricity and natural gas transmission, distribution, and sales to residential and business customers in the United States. Its third quarter results were hoisted by the resolution of a 2004 Texas Public Utility Commission finding and payment with regard to the Texas Electricity Industry, and reported in those results back in November 2011. Its next results are expected at the end of February, and are expected to show full year earnings of $1.14 per share, at the top end of the company’s guidance after discounting for the Texas PUC resolution.

With its shares trading at $19, trailing price to earnings ratio is 5.97 for the last 12 months (TTM). This compares with competitor Excel (XEL) of 15.33. However, stripping out the one off payment due to the Texas PUC resolution, this price to earnings ratio moves to above 16. The forward price to earnings ratio of CenterPoint shares, at 16.08, is also higher than the forward price to earnings ratio of 14.02 on Excel shares.

Operating margins at the two companies are around 16%, though the debt / equity ratio at CenterPoint, at 215, is almost double that of Excel’s 117.

CenterPoint shares currently yield 4.3%, paying a dividend of $0.81 per share and averaging a pay out rate of 62% over the last 5 years. Excel’s dividend payment over the last year has been $1.04, a yield of 3.9%. Excel’s average pay out rate over the last 5 years has been 64%.

Excel has increased its dividend by an average of over 3% per year for the last five years and 3 years, whilst CenterPoint’s average rate of dividend increase has halved, from over 5% over the 5 year period to a shade over 2.5% over the 3 year period. Such a trend should be worrying for investors in utility stocks, which tend to reward on a dividend basis rather than a capital growth basis.

Looking at the 12-month chart, recent price movement is reminiscent of a rising wedge. This would point to the possibility of short-term share price weakness, in a broadly downward trend that would see the share price moving down toward $17. The 52 week low is $15.09, and the high $21.47. The crossover of the 50-day and 100-day moving averages ($19.09 and $19.25) a few weeks ago would support this view. Excel’s chart, however, points to support between the $25 and $26 level, and with the 50-day moving average of $26.50 above its 100-day moving average of $26.08 and a falling wedge pattern that may help the recent small drift in share price reverse in the short term.

Utility shares tend to trade in tight ranges. Though the dividend yield on CenterPoint shares is 4.3%, a little better than Excel’s 3.9%, the downward trend in dividend growth on CenterPoint shares is a concern. Excel shares trade on a lower forward price to earnings ratio, a lower debt/ equity ratio, and a steadier rate of growth on its dividend. Earnings from Excel are expected to grow a little better than CenterPoint’s. For new dividend investors looking for growth in the dividend, at this time Excel looks a slightly better bet. The results due at the end of the month may give a better indication of prospects going forward, but don’t expect a thunderbolt from this electric and gas utility, better value can be found elsewhere. I rate this stock a sell right now.

About the author:

InvestmentUnderground
Buy low and sell high is easier in theory than in practice– and that’s where we come in.

At Investment Underground, our editors are disciplined, independent thinkers who will inform you when to buy undervalued investments, recognize catalysts, and sell when full value is realized. We provide timely, detailed analysis of our value investing strategies and help you achieve your goals of a reduced-risk trading environment.

If you are fed up with volatile markets and manipulation that put your financial well-being in jeopardy, join us to achieve those gains you deserve without the headache.

Visit InvestmentUnderground's Website


Rating: 3.5/5 (13 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK