CenterPoint Energy, Inc. (CNP) — our latest focus stock — carries S&P Capital IQ's highest investment recommendation of 5-STARS, or Strong Buy, notes CFRA Research analyst Christopher Muir in the research firm's advisor service, The Outlook.

CenterPoint Energy, Inc. is a Houston-based energy delivery company. CNP's 2018 segments were electric transmission & distribution (31% of 2018 revenues), natural gas distribution (28%), energy services (42%), and other operations (0.1%). The midstream operations are now accounted for as an equity investment.

On February 1, 2019, CNP closed on the acquisition of Vectren. We believe its operations will be incorporated into existing segments.

As of December 31, 2018, the electric transmission & distribution segment serves 2.49 million customers in a 5,000 square mile territory that includes the cities of Houston and Galveston, TX, and (except for Texas City), nearly all of the Houston/Galveston metropolitan area.

The natural gas distribution segment serves about 3.51 million residential, commercial and industrial customers in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and Texas. CNP closed on its acquisition of Vectren in February 2019, adding 145,000 electric customers in Indiana.

The Energy Services segment offers variable and fixed-priced physical natural gas supplies primarily to commercial and industrial customers and electric and gas utilities through CenterPoint Energy Services, Inc. and its subsidiary, CenterPoint Energy Intrastate Pipelines, LLC.

The Midstream Investments segment holds CNP's ownership in the Enable MLP (ENBL). CNP and OGE Energy (OGE) each have 50% of the general partnership interest and CNP owns 40% of the incentive distribution rights of the general partnership interest. CNP also owns 54.0% of the limited partnership interests.

Enable provides natural gas gathering, processing and fractionation services and crude oil gathering for its producer customers and provides interstate and intrastate natural gas pipeline transportation and storage service to natural gas producers, utilities and industrial customers. Enable is accounted for using the equity method.

Our Strong Buy opinion reflects our positive view of CNP's capital spending program and its discount-to-peers valuation. We see the regulated capital spending helping to drive future EPS growth. We see excess cash flows generated by the non-utility businesses being reinvested into the utility businesses, increasing the utility businesses’ share of income over time.

Our 2019 recurring EPS estimate, excluding $0.20 of net nonrecurring charges, is $1.65, up 3.1% from 2018's $1.60, which excludes $0.86 of net nonrecurring charges. We forecast 2020 EPS of $1.80, up 9.1%.

Our 12-month target price of $35 is 19.4x our 2020 estimate, or a small discount to our peer target, warranted by our projection of a near-peers three-year EPS growth rate, helped by an above-peers dividend yield of 3.9%. Risks to our opinion and target include changes in regional and national economic conditions.

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