Entergy (ETR) To Gain From Renewables & Grid Upgradation
Zacks Investment Research | Nov 06, 2018 10:52PM ET
We recently issued an updated research report on Entergy Corporation (NYSE:ETR) . The company delivered third-quarter 2018 adjusted earnings of $3.22 per share, surpassing the Zacks Consensus Estimate of $2.83 by 33.2%. Moreover, the bottom line improved 60.4% from the year-ago period.
Entergy plans to invest $11.22 billion between 2018 and 2020. The strategy includes $4.25 billion for generation, $2.84 billion for distribution and $2.59 billion for transmission.
What’s Driving the Stock?
Entergy expects infrastructural upgrades, asset replacement and industrial load growth to drive earnings. In addition to pursuing growth opportunities in the generation business, the company possesses a strong project pipeline and has secured the Louisiana Public Service Commission (LPSC) approval to replace 100 miles of pipe over the next 10 years.
During the third quarter of 2018, Entergy Louisiana announced that it signed a long-term agreement to serve Shintech's expanding manufacturing complex in Iberville Parish. The expansion, on a whole, is projected to create up to 3,000 construction jobs at its peak. The project is expected to come online in early 2021.
Further, Entergy plans to diminish risk and volatility in its Entergy Wholesale Commodities (EWC) business. The company is gradually reducing its EWC footprint and has planned to shut down its nuclear reactors, falling under this business. The strategy of shelling out its merchant power business seems to be attractive as regulated spending offers a secured rate of return. Eventually, these divestments will enable Entergy to operate as a pure play utility.
Entergy maintains a stable liquidity position, backed by strong cash generation capacity. As of Sep 30, 2018, it had cash and cash equivalents of $988 million compared with $781 million at 2017 end.
However, the performance of the company’s regulated utilities heavily depends on rate relief at regular intervals. Further, adverse decisions in any of its pending regulatory cases can materially impact Entergy's earnings.
Estimates for Entergy have been revised upward over the past 30 days. Notably, the company’s bottom line exceeded the consensus mark in three out of the trailing four quarters, the average beat being 36.20%.
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