Morningstar | CenterPoint’s Results Negatively Impacted by Weather Following Vectren Merger; No Change to FVE
We are reaffirming our $30 per share fair value estimate after CenterPoint Energy reported weak 2019 first-quarter adjusted earnings and reaffirmed earnings guidance. The mild weather negatively impacted first-quarter adjusted operating earnings at Houston Electric and also pressured earnings at the Energy Services segment that benefited from favorable weather in the same period last year.Results impacted by weather usually even out over the long run, and the near-term unfavorable variances had no impact on our fair value estimate. However, we reduced our 2019 EPS estimate by $0.02, to $1.64 per share, to account for the weak start to the year. CenterPoint reported adjusted operating earnings of $0.46 per share in the recently ended quarter versus $0.55 per share in the same period last year.
We were disappointed that the newly acquired Infrastructure Services segment had a small operating loss even after merger-related expenses are excluded. However, the former Vectren business unit added a large transmission project that increased backlog to close to $1 billion, and we are still confident it will show a small operating profit for the full year. We continue to believe this segment will see incremental business opportunities from CenterPoint’s large utility footprint.
The poor first-quarter results were especially disappointing since it includes two months of Vectren following the Feb. 1 closing. We remain confident that the merger will eventually prove accretive and dilute Enable and Energy Services’ no-moat businesses to less than 20% of consolidated earnings by 2023. This solidifies our view that CenterPoint has a narrow economic moat.
CenterPoint Energy owns interests in Enable Midstream Partners, LP. The company's subsidiaries own and operate electric transmission and distribution, electric generation and natural gas distribution facilities, supply natural gas to commercial and industrial customers and electric and natural gas utilities and provide underground pipeline construction and repair services, energy performance contracting and sustainable infrastructure services. The company's segments include: Houston Electric T&D, which consists of electric transmission and distribution services in the Texas Gulf Coast area; and Energy Services, which consists of non-rate regulated natural gas sales and services operations.
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