CenterPoint Energy (CNP)

Total return at 5 years: 4.8%/year = 2.0% 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).

Today — fairly valued: at $39 trades ~1.4% 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.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($39) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-0.3%/year) than we project (7.5%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$1.2 bn of owner earnings in year 5 (vs ~$1.7 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on P/E sobre utilidad ajustada. In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

An electric transmission/distribution (Houston Electric, Indiana Electric) and natural gas (Texas, Minnesota, Indiana) utility, 100% regulated on a cost-of-service basis. The metric is adjusted non-GAAP earnings (excluding the ZENS mark-to-market, merger/divestiture impacts and TEEEF outside the rate base) — the same one the company guides: 2025 actual US$1.76/share, 2026 guidance US$1.89-1.91 (US$1.90 at the midpoint, +8%). The year-1 path anchors to that guidance; year 5 decays toward the lower end of the long-term growth range (7-9% through 2035) as the easier rate recovery opportunities are exhausted. The exit multiple starts from the regulated utility band (P/E 15-18×) toward the ceiling, on rate base growth above the sector average (large-load demand from ERCOT/Houston), and compresses from the multiple at which it trades today.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $43 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $39, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $43 in 5 years plus $6 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $40. Against the current market price ($39), the margin of safety is 1.4% (trades below the maximum → there is margin) and the total return at that price would be 4.8% annually.

• Multiple vs category band. 22× adjusted earnings — above the band of a pure regulated utility (15–18×), without the contracted-competitive business that justifies additional premium in NEE.
• Growth vs multiple. Multiple compresses 22×→17× as adjusted earnings converge from +8% toward lower end of long-term target (7–9%).
• Margin of safety. Base +2%/year price (+5% with dividend) versus median required returns (~10%); today's price already factors in rate-base growth.

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (82%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Regulated return (authorized ROE). 9.65% authorized to Houston Electric (PUCT final order, March 2025), 9.79% to the Ohio gas utility and 9.80% to Indiana Electric — the full regulated range sits just below the method's 10% bar, which is what to expect in a business whose return is set by the regulator and not by the market.
• Earnings quality. GAAP is volatile due to ZENS note mark-to-market and gas divestiture impacts; adjusted earnings is the clean metric management guides.
• Value creation. Each dollar of new rate base earns the regulator-authorized return; rate-base growth is the value creation mechanism, not a market spread.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The engine of a regulated utility is rate base × regulator-authorized return. CenterPoint grows by deploying capital (US$66.7 billion 10-year plan) that expands Houston Electric, Indiana Electric, and gas distributor rate bases, today driven by ERCOT large-load demand in Houston. Capital-intensive: funded with debt + modest equity issuance (~US$4 billion through 2035), which is why reported free cash flow is negative by design.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (31-mar-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real, not nominal. Growth is physical: grid rate base + GW of large loads energized, not monetary growth or easy comps.
• Growth engine. ERCOT large-load demand (>17 GW requested) + US$66.7 billion 10-year capital plan.
• Sustainability. 2026 guidance (+8%) is well-grounded in Batch Zero process already underway; risk is that real energization of ~14 GW eligible delays.

• Relevant in 10 years (recurrence). Electricity and gas are the most recurring demand that exists; large-load demand accelerates it. Maximum regulatory predictability.
• Pricing power. Set by regulator (authorized return on rate base) — not market pricing power but administered return.
• Moat and its direction. Wide and stable moat: territorial monopoly + network scale; widens with each new GW of rate base the regulator approves.
• Cyclicality / sensitivity. Low cyclicality (stable regulated demand) but highly sensitive to rates due to leverage and state regulatory policy.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Regulated return (earned vs allowed ROE)Earns 9.6% vs allowed 9.7%
• !Value creation (allowed ROE − 10% bar)-0.4pp
• !Leverage (net debt / EBITDA)5.7x · Baa2 / BBB / BBB
• ✓Predictability (% regulated + rate-base growth)100% regulated · rate base +$6.8 bn/year

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage (regulated utility lens). Net debt/EBITDA ~5.7×, equity ratio ~34% — high by design; judged by utility thresholds, not corporate solvency.
• Credit quality. Investment grade at holding (Baa2/BBB/BBB) and operating subsidiaries (A/A− at Houston Electric and CERC).
• Capital plan financing. Funded with debt + ~US$4 billion equity through 2035, unchanged despite recent plan expansion.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Skin in the game. No controlling shareholder; ownership dominated by passive and active institutional investors.
• Capital allocation. Deploys capital to regulated rate base, funded with debt + modest equity issuance; raised the plan without increasing dilution guidance.
• Integrity / candor. Transparent disclosure of pending litigation (TEEEF, rate cases) and gas divestitures in progress.

• Not particularly cheap: trades at 22× adjusted earnings, above the band of a pure regulated utility (15–18×).
• The premium is explained by a genuine and recent growth driver (ERCOT large-load demand in Houston, with capital plan recently raised), not by a clear perception-vs-reality gap.

The case shows no clear discount driver (§9): no forced sale, one-off earnings hit, or analyst coverage gap. Price already factors in above-average rate-base growth; margin of safety depends on that growth holding up and the multiple not compressing faster than modeled.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -2%/year (-8% total): the margin of safety protects the downside. The bull (+9%/year, +52% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Rate-setting regulatory risk. Houston Electric 2024 precedent (ROE resolved below request) may repeat in upcoming rate cases.
• TEEEF litigation. ~US$800 million already approved for recovery are disputed; fleet released to San Antonio reduces blackout response capacity.
• Counterparty concentration. ~60% of Houston Electric receivables concentrated in NRG and Vistra Energy affiliates.
• Interest rate sensitivity. Capital plan funding via debt grows more expensive with high rates, and dividend yield competes with Treasury bonds.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROE barely matches the 10% bar (the market's opportunity cost), no excess return.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 8% at a PEG of 2.9 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).

• Howard Marks Perception vs reality + cycle

  The price discounts -0% vs our 8%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -5%/yr, bull-scenario ceiling +6%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, efficient scale, cost advantage → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -0%, within what we project (8%) — the story squares with the numbers.