On Nov 7, 2014, we issued an updated research report on a New Orleans, LA-based Entergy Corporation (ETR). This utility company remains primarily engaged in the production and retail distribution of electric power. Shares of the company have soared 29% so far this year, outperforming the 10.26% gain of the S&P 500 over the same period.
In its third-quarter 2014 earnings release, although the company met the Street expectation, its earnings fell over 30% from the year-ago level due to a decline in earnings at the Utility, Entergy Wholesale Commodities, and Parent and Other segments. Entergy also expects its full-year earnings to remain below the mid-point of the guided range.
On the other hand, Entergy’s total operating revenues surpassed the Street consensus by 8.6%. Reported revenues also increased 3.2% year over year primarily due to an improvement in Electric (4.4%) and Natural Gas (7.4%) sales. Its Utility business posted the fifth straight quarter-over-quarter industrial sales growth and the second straight quarter of over 5% growth in the third quarter.
To attract industry and generate employment, Entergy Louisiana and Entergy Gulf States Louisiana asked the Louisiana Public Service Commission (LPSC) to approve their merging into a single utility. Combining the two companies will enable Entergy to make the required investments in Louisiana power infrastructure. The move will improve the company’s ability to draw capital while providing more flexibility. By 2019, the two companies expect up to 1,600 megawatts (MWs) of industrial load growth.
Entergy’s nuclear fleet, along with its complementary and flexible fossil and hydro fleets, gives the company a distinct generation cost advantage over its fossil fuel based competitors. Steady investments in installing scrubbers and other emission-control equipment at its facilities will enable the company to curb carbon emissions effectively, thereby meeting environmental regulations. In the third quarter, Entergy’s nuclear plants operated well posting a 90% capacity factor at EWC with fewer unplanned outage days.
In addition to pursuing pollution control measures, the company has a strong project pipeline and intends to start the new Big River steel plant in Arkansas. Entergy has already completed the expansion of an existing steel mill. A combination of different types of projects will enable the company to diversify its revenue stream.
Apart from utilizing funds for growth projects, Entergy continues to focus on maximizing shareholder value through the regular payment of dividends. Currently, the company offers an annual dividend yield of 4.1%, much higher than the industry average of 2.1%.
Key Picks in the Sector
Entergy presently holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the same sector include Black Hills Corporation (NYSE:BKH), Pacific Gas & Electric Co (NYSE:PCG) and Consolidated Edison (NYSE:ED). Black Hills and PG&E sport a Zacks Rank #1 (Strong Buy), while Consolidated Edison holds a Zacks Rank #2 (Buy).