Intrinsic value of CenterPoint Energy - CNP

Previous Close

$28.38

  Intrinsic Value

$152.34

stock screener

  Rating & Target

str. buy

+437%

Previous close

$28.38

 
Intrinsic value

$152.34

 
Up/down potential

+437%

 
Rating

str. buy

*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 12.2

 

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
  36.10
  32.99
  30.19
  27.67
  25.40
  23.36
  21.53
  19.88
  18.39
  17.05
  15.84
  14.76
  13.78
  12.91
  12.11
  11.40
  10.76
  10.19
  9.67
  9.20
  8.78
  8.40
  8.06
  7.76
  7.48
  7.23
  7.01
  6.81
  6.63
  6.46
Revenue, $m
  0
  10,246
  13,626
  17,739
  22,648
  28,402
  35,038
  42,581
  51,044
  60,429
  70,732
  81,938
  94,032
  106,993
  120,800
  135,435
  150,879
  167,118
  184,142
  201,944
  220,526
  239,890
  260,048
  281,014
  302,811
  325,464
  349,003
  373,466
  398,893
  425,331
  452,828
Variable operating expenses, $m
 
  8,340
  11,062
  14,376
  18,330
  22,965
  28,311
  34,387
  41,204
  48,765
  57,064
  66,005
  75,747
  86,188
  97,311
  109,100
  121,541
  134,622
  148,335
  162,676
  177,644
  193,243
  209,481
  226,371
  243,929
  262,177
  281,139
  300,845
  321,328
  342,625
  364,775
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
  8,780
  11,513
  14,838
  18,804
  23,450
  28,809
  34,897
  41,727
  49,301
  57,613
  66,568
  76,324
  86,779
  97,917
  109,721
  122,178
  135,275
  149,004
  163,362
  178,347
  193,964
  210,220
  227,128
  244,705
  262,972
  281,954
  301,681
  322,184
  343,503
  365,675
Operating income, $m
  959
  1,466
  2,113
  2,901
  3,844
  4,951
  6,229
  7,684
  9,317
  11,129
  13,118
  15,370
  17,708
  20,213
  22,884
  25,714
  28,702
  31,843
  35,137
  38,582
  42,178
  45,926
  49,828
  53,886
  58,106
  62,491
  67,049
  71,785
  76,709
  81,828
  87,153
EBITDA, $m
  2,085
  2,902
  3,993
  5,323
  6,912
  8,777
  10,929
  13,376
  16,123
  19,171
  22,518
  26,159
  30,088
  34,301
  38,789
  43,546
  48,567
  53,847
  59,383
  65,172
  71,214
  77,512
  84,068
  90,887
  97,976
  105,344
  113,001
  120,958
  129,230
  137,830
  146,775
Interest expense (income), $m
  406
  353
  623
  961
  1,371
  1,860
  2,434
  3,096
  3,849
  4,693
  5,629
  6,657
  7,775
  8,981
  10,274
  11,651
  13,111
  14,651
  16,271
  17,969
  19,745
  21,599
  23,530
  25,541
  27,632
  29,807
  32,066
  34,414
  36,854
  39,391
  42,028
Earnings before tax, $m
  686
  1,114
  1,489
  1,941
  2,473
  3,091
  3,795
  4,587
  5,468
  6,436
  7,489
  8,713
  9,933
  11,232
  12,610
  14,063
  15,591
  17,192
  18,866
  20,613
  22,433
  24,328
  26,298
  28,345
  30,473
  32,685
  34,983
  37,371
  39,854
  42,437
  45,125
Tax expense, $m
  254
  301
  402
  524
  668
  834
  1,025
  1,239
  1,476
  1,738
  2,022
  2,353
  2,682
  3,033
  3,405
  3,797
  4,210
  4,642
  5,094
  5,566
  6,057
  6,568
  7,100
  7,653
  8,228
  8,825
  9,445
  10,090
  10,761
  11,458
  12,184
Net income, $m
  432
  813
  1,087
  1,417
  1,806
  2,256
  2,770
  3,349
  3,991
  4,698
  5,467
  6,361
  7,251
  8,200
  9,205
  10,266
  11,381
  12,550
  13,772
  15,047
  16,376
  17,759
  19,197
  20,692
  22,246
  23,860
  25,537
  27,281
  29,094
  30,979
  32,941

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
  27,917
  37,127
  48,336
  61,712
  77,389
  95,471
  116,023
  139,083
  164,657
  192,729
  223,265
  256,218
  291,534
  329,157
  369,033
  411,115
  455,362
  501,748
  550,257
  600,887
  653,651
  708,577
  765,707
  825,098
  886,822
  950,962
  1,017,619
  1,086,903
  1,158,939
  1,233,863
Adjusted assets (=assets-cash), $m
  20,535
  27,917
  37,127
  48,336
  61,712
  77,389
  95,471
  116,023
  139,083
  164,657
  192,729
  223,265
  256,218
  291,534
  329,157
  369,033
  411,115
  455,362
  501,748
  550,257
  600,887
  653,651
  708,577
  765,707
  825,098
  886,822
  950,962
  1,017,619
  1,086,903
  1,158,939
  1,233,863
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
  8,094
  10,764
  14,014
  17,892
  22,437
  27,680
  33,639
  40,324
  47,739
  55,878
  64,731
  74,285
  84,524
  95,432
  106,994
  119,194
  132,023
  145,472
  159,536
  174,215
  189,513
  205,438
  222,001
  239,221
  257,116
  275,713
  295,038
  315,126
  336,011
  357,734
Working capital, $m
  -157
  441
  586
  763
  974
  1,221
  1,507
  1,831
  2,195
  2,598
  3,041
  3,523
  4,043
  4,601
  5,194
  5,824
  6,488
  7,186
  7,918
  8,684
  9,483
  10,315
  11,182
  12,084
  13,021
  13,995
  15,007
  16,059
  17,152
  18,289
  19,472
Total debt, $m
  9,309
  14,167
  21,830
  31,156
  42,284
  55,328
  70,372
  87,472
  106,657
  127,935
  151,291
  176,696
  204,113
  233,496
  264,798
  297,975
  332,987
  369,802
  408,395
  448,754
  490,878
  534,778
  580,476
  628,008
  677,422
  728,776
  782,141
  837,599
  895,243
  955,177
  1,017,514
Total liabilities, $m
  18,369
  23,227
  30,890
  40,216
  51,344
  64,388
  79,432
  96,532
  115,717
  136,995
  160,351
  185,756
  213,173
  242,556
  273,858
  307,035
  342,047
  378,862
  417,455
  457,814
  499,938
  543,838
  589,536
  637,068
  686,482
  737,836
  791,201
  846,659
  904,303
  964,237
  1,026,574
Total equity, $m
  3,460
  4,690
  6,237
  8,120
  10,368
  13,001
  16,039
  19,492
  23,366
  27,662
  32,378
  37,509
  43,045
  48,978
  55,298
  61,998
  69,067
  76,501
  84,294
  92,443
  100,949
  109,813
  119,041
  128,639
  138,616
  148,986
  159,762
  170,960
  182,600
  194,702
  207,289
Total liabilities and equity, $m
  21,829
  27,917
  37,127
  48,336
  61,712
  77,389
  95,471
  116,024
  139,083
  164,657
  192,729
  223,265
  256,218
  291,534
  329,156
  369,033
  411,114
  455,363
  501,749
  550,257
  600,887
  653,651
  708,577
  765,707
  825,098
  886,822
  950,963
  1,017,619
  1,086,903
  1,158,939
  1,233,863
Debt-to-equity ratio
  2.690
  3.020
  3.500
  3.840
  4.080
  4.260
  4.390
  4.490
  4.560
  4.620
  4.670
  4.710
  4.740
  4.770
  4.790
  4.810
  4.820
  4.830
  4.840
  4.850
  4.860
  4.870
  4.880
  4.880
  4.890
  4.890
  4.900
  4.900
  4.900
  4.910
  4.910
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
  813
  1,087
  1,417
  1,806
  2,256
  2,770
  3,349
  3,991
  4,698
  5,467
  6,361
  7,251
  8,200
  9,205
  10,266
  11,381
  12,550
  13,772
  15,047
  16,376
  17,759
  19,197
  20,692
  22,246
  23,860
  25,537
  27,281
  29,094
  30,979
  32,941
Depreciation, amort., depletion, $m
  1,126
  1,435
  1,880
  2,422
  3,068
  3,826
  4,700
  5,693
  6,807
  8,043
  9,399
  10,789
  12,381
  14,087
  15,905
  17,832
  19,866
  22,004
  24,245
  26,589
  29,036
  31,586
  34,240
  37,000
  39,870
  42,853
  45,952
  49,173
  52,521
  56,002
  59,622
Funds from operations, $m
  2,188
  2,248
  2,967
  3,839
  4,874
  6,082
  7,470
  9,041
  10,798
  12,741
  14,866
  17,149
  19,632
  22,287
  25,111
  28,098
  31,247
  34,554
  38,018
  41,637
  45,412
  49,345
  53,437
  57,692
  62,116
  66,713
  71,489
  76,454
  81,615
  86,981
  92,564
Change in working capital, $m
  260
  117
  145
  177
  211
  247
  285
  324
  364
  404
  443
  482
  520
  557
  594
  629
  664
  698
  732
  766
  799
  833
  867
  902
  937
  974
  1,012
  1,052
  1,093
  1,137
  1,182
Cash from operations, $m
  1,928
  2,131
  2,822
  3,662
  4,663
  5,835
  7,184
  8,717
  10,435
  12,337
  14,423
  16,667
  19,112
  21,730
  24,517
  27,469
  30,583
  33,856
  37,286
  40,871
  44,613
  48,512
  52,570
  56,791
  61,179
  65,738
  70,477
  75,402
  80,521
  85,844
  91,381
Maintenance CAPEX, $m
  0
  -991
  -1,349
  -1,794
  -2,336
  -2,982
  -3,740
  -4,613
  -5,606
  -6,721
  -7,957
  -9,313
  -10,789
  -12,381
  -14,087
  -15,905
  -17,832
  -19,866
  -22,004
  -24,245
  -26,589
  -29,036
  -31,586
  -34,240
  -37,000
  -39,870
  -42,853
  -45,952
  -49,173
  -52,521
  -56,002
New CAPEX, $m
  -1,414
  -2,146
  -2,670
  -3,250
  -3,878
  -4,545
  -5,242
  -5,959
  -6,686
  -7,415
  -8,139
  -8,853
  -9,554
  -10,239
  -10,908
  -11,561
  -12,201
  -12,829
  -13,449
  -14,064
  -14,679
  -15,298
  -15,925
  -16,564
  -17,219
  -17,895
  -18,596
  -19,326
  -20,088
  -20,885
  -21,723
Cash from investing activities, $m
  -1,046
  -3,137
  -4,019
  -5,044
  -6,214
  -7,527
  -8,982
  -10,572
  -12,292
  -14,136
  -16,096
  -18,166
  -20,343
  -22,620
  -24,995
  -27,466
  -30,033
  -32,695
  -35,453
  -38,309
  -41,268
  -44,334
  -47,511
  -50,804
  -54,219
  -57,765
  -61,449
  -65,278
  -69,261
  -73,406
  -77,725
Free cash flow, $m
  882
  -1,006
  -1,197
  -1,382
  -1,551
  -1,693
  -1,797
  -1,855
  -1,858
  -1,798
  -1,672
  -1,499
  -1,231
  -890
  -479
  2
  550
  1,161
  1,833
  2,562
  3,345
  4,178
  5,060
  5,988
  6,959
  7,973
  9,028
  10,124
  11,261
  12,438
  13,657
Issuance/(repayment) of debt, $m
  -154
  6,152
  7,663
  9,326
  11,128
  13,044
  15,044
  17,100
  19,186
  21,278
  23,356
  25,406
  27,417
  29,383
  31,302
  33,177
  35,012
  36,814
  38,593
  40,359
  42,124
  43,900
  45,698
  47,532
  49,413
  51,354
  53,365
  55,458
  57,644
  59,934
  62,336
Issuance/(repurchase) of shares, $m
  0
  417
  460
  466
  442
  378
  267
  104
  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
  6,569
  8,123
  9,792
  11,570
  13,422
  15,311
  17,204
  19,186
  21,278
  23,356
  25,406
  27,417
  29,383
  31,302
  33,177
  35,012
  36,814
  38,593
  40,359
  42,124
  43,900
  45,698
  47,532
  49,413
  51,354
  53,365
  55,458
  57,644
  59,934
  62,336
Total cash flow (excl. dividends), $m
  520
  5,563
  6,926
  8,410
  10,019
  11,729
  13,514
  15,349
  17,328
  19,479
  21,684
  23,907
  26,186
  28,493
  30,824
  33,179
  35,562
  37,975
  40,426
  42,921
  45,469
  48,078
  50,758
  53,520
  56,372
  59,327
  62,393
  65,582
  68,905
  72,372
  75,993
Retained Cash Flow (-), $m
  1
  -1,230
  -1,547
  -1,883
  -2,247
  -2,634
  -3,038
  -3,453
  -3,874
  -4,296
  -4,716
  -5,130
  -5,536
  -5,933
  -6,321
  -6,699
  -7,070
  -7,434
  -7,793
  -8,149
  -8,506
  -8,864
  -9,228
  -9,598
  -9,978
  -10,370
  -10,776
  -11,198
  -11,640
  -12,102
  -12,587
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
 
  4,333
  5,378
  6,527
  7,772
  9,095
  10,476
  11,896
  13,454
  15,183
  16,968
  18,777
  20,650
  22,560
  24,503
  26,480
  28,492
  30,542
  32,633
  34,772
  36,963
  39,214
  41,531
  43,922
  46,395
  48,957
  51,618
  54,384
  57,265
  60,270
  63,406
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
 
  3,975
  4,490
  4,914
  5,228
  5,412
  5,456
  5,361
  5,183
  4,936
  4,592
  4,170
  3,705
  3,217
  2,730
  2,263
  1,832
  1,448
  1,116
  838
  614
  437
  302
  203
  133
  84
  51
  30
  17
  9
  5
Current shareholders' claim on cash, %
  100
  96.7
  94.1
  92.1
  90.7
  89.8
  89.3
  89.1
  89.1
  89.1
  89.1
  89.1
  89.1
  89.1
  89.1
  89.1
  89.1
  89.1
  89.1
  89.1
  89.1
  89.1
  89.1
  89.1
  89.1
  89.1
  89.1
  89.1
  89.1
  89.1
  89.1

CenterPoint Energy, Inc. is a public utility holding company. The Company, through its subsidiaries, owns and operates electric transmission and distribution facilities, and natural gas distribution facilities. The Electric Transmission & Distribution segment provides electric transmission and distribution services to retail electric providers. Its Natural Gas Distribution segment offers intrastate natural gas sales to and natural gas transportation and distribution for residential, commercial and industrial customers. Its Energy Services segment includes non-rate regulated gas sales and transportation and storage services for commercial and industrial customers. Its Midstream Investments segment includes equity investment in Enable that owns, operates and develops natural gas and crude oil assets. Its Other Operations segment includes office buildings and other real estate used in its business operations and other corporate operations.

FINANCIAL RATIOS  of  CenterPoint Energy (CNP)

Valuation Ratios
P/E Ratio 28.3
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 23.8
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 36.1% 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 430.976 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 $12.2 billion.

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COMPANY NEWS

▶ Certain Utilities Received a Target Price Change Last Week   [Nov-28-17 07:33AM  Market Realist]
▶ Top Dividend Paying Companies   [Nov-14-17 08:02AM  Simply Wall St.]
▶ CenterPoint misses 3Q profit forecasts   [06:43AM  Associated Press]
▶ CenterPoint Energy declares $0.2675 quarterly dividend   [Oct-25-17 05:00PM  PR Newswire]
▶ Receptionist's family sues over fatal Minnesota school blast   [Oct-18-17 05:42PM  Associated Press]
▶ How the Top Utility Performers of 2017 Are Currently Valued   [Oct-11-17 03:35PM  Market Realist]
▶ Stocks With Rising Relative Strength: Centerpoint Energy   [03:00AM  Investor's Business Daily]
▶ Heres Where to Find Dividend Yield in a Stingy Market   [Sep-18-17 01:15PM  InvestorPlace]
▶ CenterPoint JV to buy Dallas-based midstream company   [09:45AM  American City Business Journals]
▶ Stocks Flashing Renewed Technical Strength: Centerpoint Energy   [03:00AM  Investor's Business Daily]
▶ This Houston-Based Utility's Stock Was Spared Hurricane Damage   [Sep-07-17 02:18PM  Investor's Business Daily]
▶ 5 Companies Hit 52-Week Highs   [Aug-22-17 01:31PM  GuruFocus.com]
Financial statements of CNP
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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