Houston, We Have a Plan: CNP's Measured Approach to ERCOT Growth; Initiating at Neutral

Research evidence excerpt

Houston, We Have a Plan: CNP's Measured Approach to ERCOT Growth; Initiating at Neutral

Investment Thesis

We rate CNP shares with a Neutral rating. We view the company's positioning within Texas as notable; CNP has the ability to capture

industrial load growth without the reliance of data centers, and has continued to provide transparency into its load expectations

within ERCOT. CNP has highlighted its growth in Texas through its strategic divestitures, recycling capital into higher growth areas,UTILITIES also reducing the reliance of equity needs. CNP also has incremental capital opportunities across Texas, and in Indiana, totaling at

least $10bn through 2035. The company's visibility into the next 10 years is notable, projecting 7%-9% EPS growth and over 11%

rate base growth through 2035. We like CNP's framework on the regulatory side as well, with multiple trackers across each of its

jurisdictions for capital recovery, limiting the need for rate cases and larger customer rate impacts. Although we will be monitoringEQUITY political developments in Texas and Indiana, and the Batch Zero process within ERCOT, we believe CNP is positioned well as it has

been focused on affordability with announcements of customer net-benefits as well as transparency surrounding its load that it

has submitted and will be submitting to ERCOT. The stock currently trades at an 11% premium to our electric coverage average in

2030. We believe this premium is warranted and that the stock is fairly valued at this time, as it may be tricky to achieve incremental

upside at current levels. With about $1.3bn of incremental capital into our estimates, our 2030 EPS and implied LT EPS growth

is higher than both the high end of consensus and company projections, respectively.