New Contract for Entergy, Shares Down - Analyst Blog

Entergy Louisiana, LLC, a subsidiary of Entergy Corporation ETR, has entered into a 10-year contract with PennTex North Louisiana, LLC to supply approximately 25 megawatts MW of power to PennTex's Lincoln Parish plant near Arcadia, LA, beginning Mar 2015.

Initially, this deal evoked a slightly positive market reaction with the shares gaining 0.3% on May 16. However, the broader market fundamentals pulled down the price, with the company losing 1.8% yesterday to close at $73.15.

PennTex constructs and operates midstream facilities across North America. The new natural gas processing facility of PennTex is scheduled to come online by Mar 2015. The plant will remove natural gas liquids from natural gas and deliver the residue gas to the intrastate and interstate pipeline systems. The plant will install electric motors for its compressor units, thereby reducing the environmental impact. Entergy's reliable service and competitive rates have helped it to clinch the power supply deal.

Entergy's Louisiana utility companies – Entergy Louisiana, LLC and Entergy Gulf States Louisiana, L.L.C. – provide electric and gas services in southern, central and northeastern Louisiana. Last year, Entergy Gulf States Louisiana won a multi-year contract from Sasol North America, Inc., a wholly owned subsidiary of Sasol Limited, to supply 200 MW of power to Sasol's proposed ethane cracker and derivatives project in Westlake, LA beginning mid 2015.

Entergy's continuous capital investment to improve and strengthen its existing infrastructure allows it to provide reliable services to its customers. In 2013, the company invested $2,287.6 million in its operations and plans to invest $1,895 million in 2014.

The company ended the first quarter 2014 with a positive earnings surprise of 8.53% on the back of higher wholesale electricity prices owing to a frigid winter and higher revenue from the Northeast nuclear fleet in the U.S. The company also surpassed the Zacks Consensus Estimate in the last four quarters with an average beat of 6.15%.

Recently, Entergy boosted its 2014 earnings guidance to the range of $5.55–$6.75 per share from $4.60 to $5.40 per share. The Zacks Consensus Estimate is pegged at $6.16 per share.

Currently, the company holds a Zacks Rank #2 (Buy). Other better-ranked stocks to consider in this sector include National Grid plc NGG, NRG Energy, Inc. NRG and Korea Electric Power Corp. KEP. All of these stocks hold a Zacks Rank #1 (Strong Buy).