Entergy Corp. (ETR) is shifting towards becoming a fundamentally strong electric energy utility with the separation of its nuclear business. Its core business shows strong earnings growth and cash flow generation by higher production with fewer outage days and higher power prices.
Favorable regulatory rate hikes, higher contract and market energy pricing, increased generation from the Palisades nuclear plant acquisition, a reasonable valuation and steady recovery from the hurricane damage of September 2007 will continue to deliver strong earnings and cash flow growth.
Furthermore, the company's share-repurchase program continues to boost EPS. Therefore, we reiterate our Buy recommendation on ETR with a six-month target price of $117. Price appreciation to our near-term valuation target, coupled with a quarterly cash dividend of $0.75 per share which appears sustainable and secure represents annualized total return potential of 24.7%.
Anticipated rate increases, a relatively strong balance sheet and decent earnings visibility at the Entergy Nuclear business are some of the company's attractive investment features. In addition to the approval of a revised rate settlement, the LPSC agreed to provide for rate recovery of the two supply plan contracts, once approved by the commission, through the recovery provision for new capacity in the FRP.
After 17 years of rate freeze in Texas, Entergy Texas reached a $59.5 million two-step base rate increase settlement with the broader segment of customers consisting of Entergy Texas' retail customers. At the same time, a competing settlement was introduced by the Texas Commission staff and three interveners. Hearing is underway on Entergy Texas settlement which began at the end of June 2008. ETR is expected to receive favorable legislation and re-file its rate case with the Public Utilities Commission of Texas soon.
Read the full analyst report on ETR
Get real-time market insights and profitable stock recommendations from the team of analysts at Zacks Equity Research. See all todays Analyst Blog entries on Zacks.com.