CenterPoint Energy Inc (CNP)

Conclusion

CenterPoint Energy is a US utility holding company. It runs electric transmission and distribution and natural gas distribution in Indiana, Minnesota, Ohio and Texas, serving about 2.86 million metered customers. On 2026-11-09 the share price was 40.81 USD, giving a market capitalisation of 27.1 billion USD.

The verdict is overvalued. Today's multiples sit above their own ten-year medians: price-to-earnings is 23.4 against a median of 19.2, a premium of 22.1%, and enterprise value to EBITDA is 12.1 against 11.0, a premium of 10.7%. The fair value band runs from 26.28 to 39.43 USD with a midpoint of 32.86 USD, and the margin of safety is -19.5% at the current price. The input gives no per-share DCF value and no reverse DCF growth figure, so the growth the price implies cannot be set against the growth delivered. Revenue grew at 4.75% a year over five years and 2.39% over ten, but only 0.13% over three, and EPS fell at 1.37% a year over three years.

Two strengths support the case: an operating margin of 24.4% against a ten-year median of 15.2%, and a dividend yield of 2.23%. Two weaknesses threaten it: net debt to EBITDA of 5.75x and interest coverage of 2.39x. Free cash flow is also negative, with a TTM conversion of -2.45 and free cash flow after stock-based compensation of -2.83 billion USD.

Financial health

Financial strength is red, held back by leverage and weak coverage, with no metric assessed as good. Net debt to EBITDA is 5.75x and interest coverage is 2.39x on a trailing basis, both assessed bad. The current ratio is 1.15 and the quick ratio is 0.37, so liquidity is adequate but thin on the quick measure. Debt to equity stands at 2.12. The Altman Z-score is 0.88, which falls in the distress zone; the model was designed for manufacturers, so for a regulated utility this reading is only a rough guide. Insolvency risk: low, about 1.8% by the estimate of the Ohlson model over one to two years, based on 2025 year-end data.

Earnings quality

Earnings quality is red. Free cash flow conversion is -2.45 on a trailing basis and -1.99 over five years, meaning the company has been consuming cash relative to reported earnings. The accrual ratio is -0.03, which is a mildly favourable sign. Stock-based compensation is not reported in the data, so its cost relative to revenue is not available. The share count has grown at 4.32% a year over five years, so dilution rather than buybacks has been the trend. The Piotroski score is 4 of 9. The Beneish M-score is not available. Over the last eight quarters the company beat estimates four times and missed three times, with an average surprise of 2.85%. Analysts' current-year estimates were essentially unchanged over 90 days, while next-year EPS estimates show growth of 9.36%.

Profitability

Profitability is green. The operating margin is 24.4% against a ten-year median of 15.2%, and the net margin is 11.8% against a median of 10.9%. The gross margin is 53.3% against a median of 37.5%. Operating margin stability is 0.23. Return on invested capital is 5.89% against a WACC of 6.61%, which gives a ROIC minus WACC value of -0.72%, assessed neutral, and the five-year median ROIC is 5.45%. The return on equity of 9.84% is inflated by leverage: the DuPont split shows a net margin of 11.2%, an asset turnover of 0.19 and an equity multiplier of 4.33. Most of the equity return therefore comes from borrowing, not from asset productivity.

Growth

Growth is yellow. Revenue compound growth is 0.13% over three years, 4.75% over five years and 2.39% over ten. Revenue grew in 6 of 10 comparable years. EPS compound growth is -1.37% over three years, assessed bad. Next-year EPS growth is estimated at 9.36%, which is the one growth signal assessed good. The gap between the recent three-year record and the forward estimate is the central question for the growth case, and the input does not contain the reverse DCF figure that would show what the current price requires.

Valuation

Valuation is red, with the verdict overvalued. Against ten-year medians, price-to-earnings carries a premium of 22.1%, enterprise value to EBITDA a premium of 10.7%, price-to-sales a premium of 38.8% and price-to-book a premium of 25.9%. The free cash flow yield is -10.4%, and the earnings yield is 4.3%. The DCF uses a discount rate of 8.9% and a terminal growth rate of 2.5%, but the input gives no per-share DCF value, because the starting free cash flow is negative. The fair value band of 26.28 to 39.43 USD rests on fixed assumptions and is an order of magnitude, not a price target. The dividend yield is 2.23% and the forward yield is 2.26%. The payout on free cash flow is not meaningful while free cash flow is negative.

Risks

The main risk is leverage. Net debt at 5.75x EBITDA and interest coverage at 2.39x leave little room if earnings fall or borrowing costs rise, and the cost of debt is 4.89%. Negative free cash flow means dividends and capital spending depend on borrowing or equity issuance, which the 4.32% annual share count growth reflects. A weak Altman Z-score of 0.88 offers little protection, though the model is poorly suited to a utility. Stock-based compensation, the Beneish M-score and a reverse DCF growth figure are not available, so these parts of the assessment remain incomplete. The analysis also has no debt maturity schedule and no revenue split by segment, so refinancing risk and the contribution of each business cannot be judged.