Centerpoint Energy Upgraded At Goldman, Despite Weakness In The Utility Sector

Goldman Sachs has upgraded CenterPoint Energy, Inc.

to Neutral from Sell despite weakness in the utility sector. "Utility valuations overall do not appear attractive, but we believe CNP presents investors with solid dividend yield, given improving cash flows," analyst Michael Lapides wrote in a note. The analyst raised EPS estimate for 2016 and 2017 on better demand in Houston, slightly higher expected rate or revenue increases at electric & gas utilities, and better cost control. Lapides now sees EPS for 2016 and 2017 at $1.14/$1.27, up from $1.09/$1.18, respectively. Lapides highlighted that the company's free cash flow would increase to over $500 million a year by 2018 on moderate capital spending, O&M management and rate increases. The analyst also raised price target for CNP by $3 to $21 and said there could be further upside to his target price. "First, we note that every 1x change to our regulated utility multiple impacts valuation by $1/sh – and regulated utilities trade slightly above our baseline target multiple of 16.5x 2017E EPS. Second, our sum of the parts for CNP assumes the GS midstream team's target price on ENBL at $10 minus a liquidity discount, vs. ENBL's current share price of above $12," Lapides noted. "We estimate that removing the liquidity discount would add $1/sh while solely using ENBL's current price with no liquidity discount would add $2-3/sh to our CNP target price," the analyst added. Shares of CenterPoint were up 0.42 percent to $21.72.