CenterPoint Energy (CNP)
Servicios públicos / Electricidad y gas natural (regulados)
100% regulated utility in Houston (electricity, transmission/distribution monopoly) and Indiana, plus natural gas in Texas/Minnesota/Indiana: adjusted earnings guided to +8% in 2026 and 7–9% long-term through 2035, driven by large-load demand in ERCOT (~14 GW eligible, +65% over current Houston Electric peak) and a US$66.7 billion 10-year capital plan. But at $39 (P/E ~22× adjusted earnings), the market already prices in that growth above the band of a pure regulated utility (15–18×): base 5y $43 (+2%/year price, +5% with dividend): Fairly valued.
- Price
- $39.19
- Intrinsic value (5y, base)
- $43
- Total annual return (5y)
- 4.7%
- Status (nominal)
- Fairly valued
- Margin of safety
- +1%
The essentials
- Two regulated businesses of the same nature (cost-of-service): Electric (Houston Electric, pure transmission/distributor with no generation, plus integrated Indiana Electric) and Natural Gas (Texas, Minnesota, Indiana; sold Louisiana/Mississippi in 2025 and agreed to sell Ohio, closing expected 4Q-2026) — deliberately downsizing to concentrate on core.
- The engine is the rate base: US$66.7 billion 10-year capital plan (raised by US$1.2 billion this quarter), driven by >17 GW of large-load requests in ERCOT's Batch Zero process (~14 GW eligible, +65% over Houston Electric's current 21 GW peak).
- Headline metric is non-GAAP adjusted earnings (excludes ZENS mark-to-market, M&A/divestiture impacts, and off-tariff TEEEF): US$1.76/share in 2025 (cash basis), 2026 guidance US$1.89–1.91 (+8% midpoint), with long-term target of +7–9% annually through 2035.
- At $39, trades ~22× adjusted earnings — above the band of a pure regulated utility (P/E 15–18×). Base return +5% total (+2%/year price and +3% dividend yield) depends on rate-base growth sustaining that premium; the multiple compresses toward the band as growth normalizes.
Intrinsic value — two valuation methods
Total return at 5 years: 4.7%/year = 1.9% appreciation + 2.8% dividend. The target price ($43) is ex-dividend; the $6 in dividends collected over 5 years are added separately.
By both methods, the value today (DCF $55 · Multiples $40) exceeds the market price ($39).
Pillars of the analysis
The verdict — today vs 5 years
Today — fairly valued: at $39 trades ~1.0% below its value discounted to today (~$40); the discount is positive but does not reach the margin of safety we require (≥38%).
At 5 years — En valor: the target price ($43) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.
The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$25.
Thesis
The business
CenterPoint is a 100% cost-of-service regulated utility: electricity transmission/distribution in Houston (territorial monopoly, no generation risk), a small integrated electric in Indiana, and gas distribution in three states after selling out-of-core gas businesses. The engine is ERCOT large-load demand in Houston, which sustains a US$66.7 billion 10-year capital plan and adjusted earnings guidance of 7–9% annually — above the typical range of a mature regulated utility.
The valuation
Valued by P/E on adjusted earnings (the metric management guides) plus rate-base growth. The method's reference band for a regulated utility is P/E 15–18×; growth above sector average justifies positioning at the top of that band (17×), not above it. The base scenario projects adjusted earnings growing from the +8% guided for 2026 toward ~7% in year 5 (the lower end of the long-term 7–9% target), with the multiple compressing from ~22× today toward ~17×. That yields ~$43/share → a price CAGR of +2%, +5% with dividend (2.4%).
Margin of safety
It trades close to intrinsic value, far from the required margin of safety. Base return (+5% total) versus average stock market returns (~10%, the method's bar). Today's price already commands a multiple above the band of a pure regulated utility, so much of the return depends on the market continuing to validate that premium while growth converges toward the band. The verdict is Fairly valued.
What to watch
Outcomes of upcoming base rate cases (Houston Electric 2024 precedent was an authorized ROE below what was requested); execution of ERCOT's Batch Zero process — how much of the ~14 GW eligible actually energizes and on what timeline; closing of Ohio gas business sale (~US$2.62 billion, expected 4Q-2026); and the dispute over who pays TEEEF emergency unit costs, with pending litigation over ~US$800 million already approved for recovery.
Educational / informational. Does not constitute investment advice.