Assessing CenterPoint Energy After Grid Modernization News and YTD 25.6% Price Gain

• Wondering if CenterPoint Energy stock is truly a solid value pick right now? You are not alone, as many investors are re-examining utility stocks in this evolving market environment.
• Despite a relatively flat month with a 0.1% gain, CenterPoint Energy has posted an impressive 25.6% return year-to-date and is up 87.0% over five years. This hints at both strong growth potential and shifting risk perceptions.
• News of ongoing infrastructure investments and regulatory developments has provided investors with more insight into CenterPoint’s strategy and has fueled recent share price moves. Notably, recent headlines have highlighted the company’s plans to expand its grid modernization projects and bolster service reliability. These are factors that often signal long-term opportunities.
• On the valuation front, CenterPoint currently scores just 0 out of 6 on our key value checks, which means none of the standard indicators signal it is undervalued at the moment. Next, we will break down what goes into that score and explore both conventional and smarter ways to measure whether the stock's price is truly justified.

CenterPoint Energy scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: CenterPoint Energy Dividend Discount Model (DDM) Analysis

The Dividend Discount Model (DDM) is a valuation approach that estimates a stock’s worth by projecting future dividend payments and discounting them back to their present value. It works best for companies with stable, predictable dividend growth and is a popular tool for analyzing utility stocks like CenterPoint Energy.

Currently, CenterPoint Energy pays an annual dividend per share of $0.97, distributing just under 55% of its earnings to shareholders. The model assumes a long-term dividend growth rate of around 3.3%, which has been moderated from even higher historical levels to reflect a more sustainable outlook. The company’s return on equity is just over 9.3%, signaling a solid but not exceptional rate of value creation given the utility industry’s capital demands.

Applying the DDM approach, the estimated intrinsic value for CenterPoint Energy shares comes in at $26.19. However, based on the current market price, the model suggests CenterPoint is about 51% overvalued. In other words, the share price is significantly above what would be justified solely by future dividend projections and reasonable growth assumptions.

Result: OVERVALUED

Our Dividend Discount Model (DDM) analysis suggests CenterPoint Energy may be overvalued by 51.1%. Discover 927 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for CenterPoint Energy.

Approach 2: CenterPoint Energy Price vs Earnings

For profitable businesses like CenterPoint Energy, the Price-to-Earnings (PE) ratio is a widely used indicator for investors. It shows how much investors are willing to pay for each dollar of current earnings, and it acts as a quick gauge for comparing a company's valuation against its own history, its peers, and the broader industry.

The "right" or "normal" PE ratio for a stock depends on expectations about the company's growth as well as the risks it might face in achieving that growth. Stocks with stronger growth prospects and lower risk can naturally command higher PE ratios. In contrast, slower-growing or riskier companies tend to trade at lower multiples.

CenterPoint Energy currently trades at a PE ratio of 24.9x. This is higher than both the average for integrated utilities, which stands at 18.2x, and the peer average of 21.5x. However, when looking at Simply Wall St's Fair Ratio metric, which adjusts for CenterPoint’s growth outlook, profit margin, industry, market cap, and risk profile, the Fair Ratio stands at 22.5x. This metric goes a step further than typical comparisons because it considers the company’s specific circumstances rather than just its sector or rivals.

Since CenterPoint's actual PE is just a little above the Fair Ratio, it suggests that the stock is pricing in a touch more optimism than average. The gap, however, is modest and falls within a reasonable range for long-term investors.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1430 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your CenterPoint Energy Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is simply a story you build around a company, connecting your perspective or thesis (for example, what you believe about CenterPoint Energy’s growth, risks, and industry dynamics) with a concrete financial forecast and an estimated fair value. Narratives allow you to move beyond just numbers, helping you ground your investment outlook in the specific drivers and assumptions you expect will shape a company’s future revenue, earnings, and margins.

This approach, available for everyone on Simply Wall St’s Community page, makes valuation smarter and more user-friendly by showing you how different forecasts impact what a stock is truly worth. It then compares that fair value to the current share price. Narratives are dynamic, updating as new company news or earnings releases come out, so your estimates always reflect the latest information. For example, a bullish Narrative for CenterPoint Energy might forecast rapid revenue and margin growth in response to major capital investments, producing a fair value as high as $44 per share. A more cautious Narrative focused on regulatory and cost headwinds could estimate fair value closer to $34, highlighting the real range of opinions and outcomes found among investors today.

Do you think there's more to the story for CenterPoint Energy? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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