CNP Investment Analysis Report & Stock Research, CenterPoint Energy, Inc.

CNP Revenue

For a long time, value investors have used the current share price relative to sales per share levels as an important valuation tool. We utilize a historical weighted average methodology that treats recent years more importantly in the calculation. When looking at CNP through this framework, we can see that our weighted average historical high and low Price to Sales per share ratios over the last 10 years are 0.62x and 0.37x respectively.

Utilizing this range we can see that CNP’s current Price to Sales per share ratio of 0.68x is well above its historical average. This means that CNP looks relatively expensive compared to its historical Price to Sales average, and thus it is more difficult to believe that there is significant price appreciation potential. In order for the stock to become more attractive, we would like to see a decline in the Price to Sales ratio of 38% just to return CNP to its historical average.

CNP Cash Earnings

As a value investment framework, Ockham Research is similar to a private equity firm in terms of our valuation methods. We are always on the lookout for value in the form of sales and cash numbers. In the case of CNP, Ockham views their current Cash Earnings as significantly above their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for CNP, the current level of Cash Earnings compared to its historical levels helps identify where CNP is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 5.31 and a historical low Cash Earnings per share ratio of 3.30, an investor can relate where value becomes optimal.

Therefore, at the current price of $14.43 and a Price to Cash Earnings ratio of 5.08, CNP is significantly overvalued. This diminishes the attractiveness of CNP until we see either a significant increase in cash earnings or a decline in price. A decline of the Price to Cash Earnings ratio of 18% is needed just to return to the historical cash earnings multiple.

CNP Dividends

While it is not necessary to pay an attractive dividend or a dividend at all, to receive a positive rating from Ockham, we view dividends as an additionally helpful measure in determining the future potential of any company.

In CNP’s case, the estimated annual dividend is $0.78 resulting in a current dividend yield of 5.41%. Similar to our review of Sales and Cash Earnings per share, we evaluate dividend yields from CNP against the historic high and low levels over the past 10 years. The highest dividend yield from CNP over this period was 30.40% while the lowest dividend yield was 2.65% With that range in mind, CNP’s current dividend yield is a full 67.26% below its median dividend yield historically. This is a negative from our perspective.