Entergy (ETR) Still Faces Nuclear Scrutiny, But Long-Term Investors Could Do Well - Barron's

May 17, 2012 10:14 AM EDT
Entergy Corp. (NYUSE: ETR) shares are higher Thursday morning following a positive mention in Barron's after the market closed Wednesday night.

The second-largest nuclear plant operator in the U.S., Entergy has come under some fire following the tsunami in Japan and the meltdown of the Fukushima I Nuclear Power Plant last year . In addition, Barron's noted criticism from -- of all people -- Governor Andrew Cuomo on the company's Indian Point location near NYC.

Shares are down 13 percent since the start of 2012, versus peers which are about flat and compared to a 6 percent rise in the S&P. At current levels its like a super-combo at your local Sizzler: pay for its regulated operations and get the wholesale business for free. In addition, a 5.1 percent yield -- better than peers -- means investors are getting paid to wait.

Wait is exactly what might happen. But, one analyst said if Entergy can keep the Indian Point plant open, which is likely, there may be upside as power prices return to normalized levels. Utility earnings also offer more downside protection for Entergy.

Entergy's regulated utilities have nat gas and coal-fired plants to power Arkansas, Louisiana, Mississippi, and Texas, while its wholesale business mostly sells nuclear power in the Northeast. Barron's noted the wholesale merchant power business thrives when power prices -- set by nat gas -- are high. Those following the commodity know all too well that nat gas prices are currently anything but high. "Low" might be a better term.

Shares are going for 12x 2012 earnings estimates, versus 14x for peers. Earnings are expected to fall 30 percent to $5.31 per share in 2012, with a similar EPS level projected for 2013.

One analyst believes Entergy's regulated business is worth $59 to $65 per share and is banking on a successful divestiture of its transmission business. The transmission business sale would allow Entergy to retire some debt, but there are still plenty of regulatory hurdles to overcome as of yet.

In addition to New York, Entergy also faces a battle in Vermont, with state regulators fighting a court decision to block the closure of Entergy's Vermont Yankee nuclear plant.

Barron's reminds investors to look at Entergy from a longer-term perspective. With energy needs increasing, a diversified set of resources will be needed to keep America running. Those with an extended time frame may want to consider adding Entergy to their portfolios.

Shares are flat Thursday.

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