Intrinsic value of CenterPoint Energy - CNP

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$28.12

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$28.12

 
Intrinsic value

$33.48

 
Up/down potential

+19%

 
Rating

hold

 
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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of CNP stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 12.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  1.92
  16.20
  15.08
  14.07
  13.16
  12.35
  11.61
  10.95
  10.36
  9.82
  9.34
  8.91
  8.51
  8.16
  7.85
  7.56
  7.31
  7.08
  6.87
  6.68
  6.51
  6.36
  6.23
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.59
  5.53
Revenue, $m
  0
  8,748
  10,067
  11,483
  12,995
  14,600
  16,295
  18,080
  19,952
  21,912
  23,958
  26,092
  28,313
  30,625
  33,028
  35,526
  38,121
  40,818
  43,622
  46,536
  49,567
  52,720
  56,002
  59,420
  62,981
  66,692
  70,563
  74,602
  78,818
  83,221
  87,821
Variable operating expenses, $m
 
  7,133
  8,195
  9,337
  10,554
  11,847
  13,213
  14,650
  16,159
  17,737
  19,386
  21,018
  22,808
  24,670
  26,606
  28,618
  30,708
  32,881
  35,139
  37,487
  39,928
  42,469
  45,112
  47,866
  50,734
  53,724
  56,842
  60,096
  63,492
  67,039
  70,744
Fixed operating expenses, $m
 
  440
  451
  462
  474
  485
  498
  510
  523
  536
  549
  563
  577
  591
  606
  621
  637
  653
  669
  686
  703
  721
  739
  757
  776
  795
  815
  836
  856
  878
  900
Total operating expenses, $m
  6,569
  7,573
  8,646
  9,799
  11,028
  12,332
  13,711
  15,160
  16,682
  18,273
  19,935
  21,581
  23,385
  25,261
  27,212
  29,239
  31,345
  33,534
  35,808
  38,173
  40,631
  43,190
  45,851
  48,623
  51,510
  54,519
  57,657
  60,932
  64,348
  67,917
  71,644
Operating income, $m
  959
  1,175
  1,421
  1,685
  1,967
  2,267
  2,585
  2,919
  3,271
  3,639
  4,023
  4,511
  4,929
  5,364
  5,816
  6,287
  6,776
  7,284
  7,813
  8,363
  8,935
  9,531
  10,151
  10,797
  11,471
  12,173
  12,906
  13,671
  14,470
  15,304
  16,177
EBITDA, $m
  2,085
  2,413
  2,832
  3,283
  3,764
  4,276
  4,817
  5,386
  5,984
  6,610
  7,264
  7,946
  8,657
  9,396
  10,165
  10,964
  11,795
  12,659
  13,557
  14,490
  15,462
  16,472
  17,525
  18,621
  19,763
  20,954
  22,197
  23,493
  24,847
  26,262
  27,740
Interest expense (income), $m
  406
  353
  474
  606
  747
  898
  1,058
  1,227
  1,405
  1,592
  1,787
  1,991
  2,204
  2,426
  2,656
  2,896
  3,145
  3,404
  3,673
  3,953
  4,243
  4,546
  4,860
  5,188
  5,528
  5,884
  6,254
  6,640
  7,043
  7,463
  7,903
Earnings before tax, $m
  686
  822
  947
  1,079
  1,220
  1,370
  1,527
  1,693
  1,866
  2,047
  2,236
  2,520
  2,725
  2,938
  3,160
  3,391
  3,631
  3,880
  4,140
  4,411
  4,692
  4,985
  5,291
  5,610
  5,942
  6,289
  6,652
  7,031
  7,427
  7,841
  8,274
Tax expense, $m
  254
  222
  256
  291
  329
  370
  412
  457
  504
  553
  604
  680
  736
  793
  853
  916
  980
  1,048
  1,118
  1,191
  1,267
  1,346
  1,429
  1,515
  1,604
  1,698
  1,796
  1,898
  2,005
  2,117
  2,234
Net income, $m
  432
  600
  691
  788
  891
  1,000
  1,115
  1,236
  1,362
  1,494
  1,632
  1,839
  1,989
  2,145
  2,307
  2,475
  2,650
  2,833
  3,022
  3,220
  3,425
  3,639
  3,862
  4,095
  4,338
  4,591
  4,856
  5,132
  5,422
  5,724
  6,040

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,294
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  21,829
  23,835
  27,430
  31,289
  35,409
  39,781
  44,401
  49,264
  54,366
  59,706
  65,282
  71,095
  77,148
  83,446
  89,994
  96,800
  103,872
  111,221
  118,860
  126,801
  135,059
  143,651
  152,594
  161,907
  171,610
  181,723
  192,271
  203,275
  214,763
  226,760
  239,294
Adjusted assets (=assets-cash), $m
  20,535
  23,835
  27,430
  31,289
  35,409
  39,781
  44,401
  49,264
  54,366
  59,706
  65,282
  71,095
  77,148
  83,446
  89,994
  96,800
  103,872
  111,221
  118,860
  126,801
  135,059
  143,651
  152,594
  161,907
  171,610
  181,723
  192,271
  203,275
  214,763
  226,760
  239,294
Revenue / Adjusted assets
  0.000
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
Average production assets, $m
  5,948
  6,911
  7,953
  9,072
  10,266
  11,534
  12,873
  14,283
  15,762
  17,310
  18,927
  20,613
  22,368
  24,194
  26,092
  28,065
  30,116
  32,246
  34,461
  36,763
  39,158
  41,649
  44,242
  46,942
  49,755
  52,687
  55,745
  58,936
  62,266
  65,745
  69,379
Working capital, $m
  -157
  376
  433
  494
  559
  628
  701
  777
  858
  942
  1,030
  1,122
  1,217
  1,317
  1,420
  1,528
  1,639
  1,755
  1,876
  2,001
  2,131
  2,267
  2,408
  2,555
  2,708
  2,868
  3,034
  3,208
  3,389
  3,579
  3,776
Total debt, $m
  9,309
  10,771
  13,761
  16,973
  20,400
  24,038
  27,882
  31,928
  36,173
  40,615
  45,254
  50,091
  55,128
  60,367
  65,815
  71,477
  77,361
  83,476
  89,831
  96,438
  103,309
  110,458
  117,899
  125,647
  133,719
  142,134
  150,909
  160,065
  169,623
  179,604
  190,033
Total liabilities, $m
  18,369
  19,831
  22,821
  26,033
  29,460
  33,098
  36,942
  40,988
  45,233
  49,675
  54,314
  59,151
  64,188
  69,427
  74,875
  80,537
  86,421
  92,536
  98,891
  105,498
  112,369
  119,518
  126,959
  134,707
  142,779
  151,194
  159,969
  169,125
  178,683
  188,664
  199,093
Total equity, $m
  3,460
  4,004
  4,608
  5,257
  5,949
  6,683
  7,459
  8,276
  9,134
  10,031
  10,967
  11,944
  12,961
  14,019
  15,119
  16,262
  17,450
  18,685
  19,968
  21,303
  22,690
  24,133
  25,636
  27,200
  28,830
  30,530
  32,301
  34,150
  36,080
  38,096
  40,201
Total liabilities and equity, $m
  21,829
  23,835
  27,429
  31,290
  35,409
  39,781
  44,401
  49,264
  54,367
  59,706
  65,281
  71,095
  77,149
  83,446
  89,994
  96,799
  103,871
  111,221
  118,859
  126,801
  135,059
  143,651
  152,595
  161,907
  171,609
  181,724
  192,270
  203,275
  214,763
  226,760
  239,294
Debt-to-equity ratio
  2.690
  2.690
  2.990
  3.230
  3.430
  3.600
  3.740
  3.860
  3.960
  4.050
  4.130
  4.190
  4.250
  4.310
  4.350
  4.400
  4.430
  4.470
  4.500
  4.530
  4.550
  4.580
  4.600
  4.620
  4.640
  4.660
  4.670
  4.690
  4.700
  4.710
  4.730
Adjusted equity ratio
  0.142
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  432
  600
  691
  788
  891
  1,000
  1,115
  1,236
  1,362
  1,494
  1,632
  1,839
  1,989
  2,145
  2,307
  2,475
  2,650
  2,833
  3,022
  3,220
  3,425
  3,639
  3,862
  4,095
  4,338
  4,591
  4,856
  5,132
  5,422
  5,724
  6,040
Depreciation, amort., depletion, $m
  1,126
  1,238
  1,412
  1,598
  1,797
  2,008
  2,232
  2,467
  2,713
  2,971
  3,241
  3,435
  3,728
  4,032
  4,349
  4,678
  5,019
  5,374
  5,744
  6,127
  6,526
  6,941
  7,374
  7,824
  8,292
  8,781
  9,291
  9,823
  10,378
  10,957
  11,563
Funds from operations, $m
  2,188
  1,838
  2,103
  2,386
  2,688
  3,008
  3,347
  3,702
  4,075
  4,466
  4,873
  5,275
  5,717
  6,177
  6,655
  7,153
  7,670
  8,207
  8,766
  9,347
  9,951
  10,581
  11,236
  11,919
  12,630
  13,372
  14,147
  14,955
  15,799
  16,681
  17,603
Change in working capital, $m
  260
  52
  57
  61
  65
  69
  73
  77
  81
  84
  88
  92
  96
  99
  103
  107
  112
  116
  121
  125
  130
  136
  141
  147
  153
  160
  166
  174
  181
  189
  198
Cash from operations, $m
  1,928
  -3,803
  2,046
  2,325
  2,623
  2,939
  3,274
  3,626
  3,995
  4,381
  4,785
  5,183
  5,621
  6,078
  6,552
  7,045
  7,558
  8,091
  8,645
  9,222
  9,821
  10,445
  11,095
  11,772
  12,477
  13,213
  13,980
  14,781
  15,618
  16,492
  17,406
Maintenance CAPEX, $m
  0
  -991
  -1,152
  -1,325
  -1,512
  -1,711
  -1,922
  -2,146
  -2,381
  -2,627
  -2,885
  -3,155
  -3,435
  -3,728
  -4,032
  -4,349
  -4,678
  -5,019
  -5,374
  -5,744
  -6,127
  -6,526
  -6,941
  -7,374
  -7,824
  -8,292
  -8,781
  -9,291
  -9,823
  -10,378
  -10,957
New CAPEX, $m
  -1,414
  -963
  -1,042
  -1,119
  -1,194
  -1,268
  -1,339
  -1,410
  -1,479
  -1,548
  -1,617
  -1,685
  -1,755
  -1,826
  -1,898
  -1,973
  -2,050
  -2,131
  -2,215
  -2,302
  -2,394
  -2,491
  -2,593
  -2,700
  -2,813
  -2,932
  -3,058
  -3,191
  -3,331
  -3,478
  -3,634
Cash from investing activities, $m
  -1,046
  -1,954
  -2,194
  -2,444
  -2,706
  -2,979
  -3,261
  -3,556
  -3,860
  -4,175
  -4,502
  -4,840
  -5,190
  -5,554
  -5,930
  -6,322
  -6,728
  -7,150
  -7,589
  -8,046
  -8,521
  -9,017
  -9,534
  -10,074
  -10,637
  -11,224
  -11,839
  -12,482
  -13,154
  -13,856
  -14,591
Free cash flow, $m
  882
  -5,757
  -148
  -119
  -83
  -39
  12
  70
  135
  206
  283
  343
  431
  524
  621
  724
  830
  941
  1,056
  1,176
  1,300
  1,428
  1,561
  1,698
  1,841
  1,988
  2,141
  2,300
  2,465
  2,636
  2,814
Issuance/(repayment) of debt, $m
  -154
  2,756
  2,991
  3,211
  3,427
  3,638
  3,844
  4,046
  4,245
  4,442
  4,639
  4,837
  5,037
  5,240
  5,448
  5,662
  5,884
  6,115
  6,355
  6,607
  6,871
  7,149
  7,441
  7,748
  8,073
  8,415
  8,775
  9,156
  9,558
  9,981
  10,428
Issuance/(repurchase) of shares, $m
  0
  3,545
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -362
  6,301
  2,991
  3,211
  3,427
  3,638
  3,844
  4,046
  4,245
  4,442
  4,639
  4,837
  5,037
  5,240
  5,448
  5,662
  5,884
  6,115
  6,355
  6,607
  6,871
  7,149
  7,441
  7,748
  8,073
  8,415
  8,775
  9,156
  9,558
  9,981
  10,428
Total cash flow (excl. dividends), $m
  520
  -3,001
  2,843
  3,092
  3,344
  3,599
  3,856
  4,116
  4,380
  4,649
  4,923
  5,180
  5,467
  5,764
  6,069
  6,386
  6,714
  7,056
  7,412
  7,783
  8,171
  8,576
  9,001
  9,446
  9,913
  10,403
  10,917
  11,456
  12,023
  12,618
  13,243
Retained Cash Flow (-), $m
  1
  -544
  -604
  -648
  -692
  -735
  -776
  -817
  -857
  -897
  -937
  -977
  -1,017
  -1,058
  -1,100
  -1,143
  -1,188
  -1,235
  -1,283
  -1,334
  -1,387
  -1,443
  -1,502
  -1,565
  -1,630
  -1,699
  -1,772
  -1,849
  -1,930
  -2,015
  -2,106
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  0
  2,239
  2,444
  2,652
  2,864
  3,080
  3,299
  3,523
  3,752
  3,986
  4,203
  4,450
  4,706
  4,969
  5,242
  5,526
  5,821
  6,128
  6,449
  6,783
  7,133
  7,499
  7,882
  8,283
  8,704
  9,145
  9,607
  10,093
  10,602
  11,137
Discount rate, %
 
  9.00
  9.45
  9.92
  10.42
  10.94
  11.49
  12.06
  12.66
  13.30
  13.96
  14.66
  15.39
  16.16
  16.97
  17.82
  18.71
  19.65
  20.63
  21.66
  22.74
  23.88
  25.07
  26.33
  27.64
  29.03
  30.48
  32.00
  33.60
  35.28
  37.05
PV of cash for distribution, $m
 
  0
  1,869
  1,840
  1,784
  1,704
  1,604
  1,487
  1,357
  1,220
  1,079
  933
  798
  671
  554
  448
  355
  276
  210
  155
  113
  79
  55
  36
  24
  15
  9
  5
  3
  2
  1
Current shareholders' claim on cash, %
  100
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4
  77.4

CenterPoint Energy, Inc. operates as a public utility holding company in the United States. The company’s Electric Transmission & Distribution segment offers electric transmission and distribution services to retail electric providers, municipalities, electric cooperatives, and other distribution companies. As of December 31, 2015, this segment owned 28,474 pole miles of overhead distribution lines and 3,723 circuit miles of overhead transmission lines; 23,120 circuit miles of underground distribution lines and 26 circuit miles of underground transmission lines; and 232 substations with a capacity of 58,674 megavolt amperes. Its Natural Gas Distribution segment sells regulated intrastate natural gas; provides natural gas transportation and storage services for residential, commercial, industrial, and transportation customers; and offers unregulated services comprising residential appliance repair and maintenance services, as well as sells heating, ventilating and air conditioning equipment. This segment owned approximately 74,000 linear miles of natural gas distribution mains. The company’s Energy Services segment provides physical natural gas supplies primarily to commercial and industrial customers, and electric and gas utilities; natural gas management services; and physical delivery services, as well as procures and optimizes transportation and storage assets. It owns and operates approximately 200 miles of intrastate pipelines; and leases transportation capacity on various interstate and intrastate pipelines, and storage. Its Midstream Investments segment provides gathering, processing, compression, treating, dehydration, and natural gas liquids fractionation for producer customers. This segment had approximately 12,400 miles of gathering pipelines, 7,900 miles of interstate pipelines, and approximately 2,300 miles of intrastate pipelines. The company was founded in 1882 and is headquartered in Houston, Texas.

FINANCIAL RATIOS  of  CenterPoint Energy (CNP)

Valuation Ratios
P/E Ratio 28
Price to Sales 1.6
Price to Book 3.5
Price to Tangible Book
Price to Cash Flow 6.3
Price to Free Cash Flow 23.6
Growth Rates
Sales Growth Rate 1.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -10.7%
Cap. Spend. - 3 Yr. Gr. Rate 1.9%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 217.7%
Total Debt to Equity 269%
Interest Coverage 3
Management Effectiveness
Return On Assets 3.2%
Ret/ On Assets - 3 Yr. Avg. 1.8%
Return On Total Capital 3.4%
Ret/ On T. Cap. - 3 Yr. Avg. 0.9%
Return On Equity 12.5%
Return On Equity - 3 Yr. Avg. 3%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 29.5%
EBITDA Margin - 3 Yr. Avg. 19.4%
Operating Margin 12.7%
Oper. Margin - 3 Yr. Avg. 11.8%
Pre-Tax Margin 9.1%
Pre-Tax Margin - 3 Yr. Avg. 1.1%
Net Profit Margin 5.7%
Net Profit Margin - 3 Yr. Avg. 1%
Effective Tax Rate 37%
Eff/ Tax Rate - 3 Yr. Avg. 35.6%
Payout Ratio 102.5%

CNP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CNP stock intrinsic value calculation we used $7528 million for the last fiscal year's total revenue generated by CenterPoint Energy. The default revenue input number comes from 2016 income statement of CenterPoint Energy. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our CNP stock valuation model: a) initial revenue growth rate of 16.2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 9%, whose default value for CNP is calculated based on our internal credit rating of CenterPoint Energy, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of CenterPoint Energy.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of CNP stock the variable cost ratio is equal to 81.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $429 million in the base year in the intrinsic value calculation for CNP stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.4% for CenterPoint Energy.

Corporate tax rate of 27% is the nominal tax rate for CenterPoint Energy. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the CNP stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for CNP are equal to 79%.

Life of production assets of 6 years is the average useful life of capital assets used in CenterPoint Energy operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for CNP is equal to 4.3%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $3460 million for CenterPoint Energy - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 431.991 million for CenterPoint Energy is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of CenterPoint Energy at the current share price and the inputted number of shares is $12.1 billion.


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COMPANY NEWS

▶ Better Buy: Southern Company vs. CenterPoint Energy   [Feb-22-17 09:48AM  at Motley Fool]
▶ Is CenterPoint Energy, Inc. (CNP) A Good Stock To Buy?   [Nov-30-16 01:37AM  at Insider Monkey]
Stock chart of CNP Financial statements of CNP
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