Free Agent
Calpine Corporation (NYSE:CPN) is among the country’s largest independent power producers. The company’s Texas division represents about 30% of its total generating capacity. That puts it in prime position to benefit from one of the strongest states in the country, particularly as regulators begin to soften their stance on rate cases. In fact, a relatively low cost operator, Calpine Corporation (NYSE:CPN) power plants should be among the first tapped by utilities to help handle demand increases.
The company took a trip through bankruptcy after the Enron scandal pummeled the merchant power market. However, public again, it has a young and efficient power fleet. Earnings and revenues have been volatile of late but haven’t had much of an impact on the company’s shares. Solid positions in key markets like Texas and California, where nuclear plant closures are likely to spur demand for Calpine Corporation (NYSE:CPN)’s gas fired plants, makes it a solid growth-focused opportunity.
In State and More
CenterPoint Energy, Inc. (NYSE:CNP) has a large power business in Texas, but also owns mid-stream energy and gas distribution assets, among others, and ultimately serves around five million customers across five states. That said, growth in key Texas markets like Houston will be a long-term benefit to CenterPoint Energy, Inc. (NYSE:CNP)’s top and bottom lines.
The really interesting aspect about the company, however, is its plan to spin off its mid-stream assets in a limited partnership (LP). Although the move will take a few years to start benefiting CenterPoint Energy, Inc. (NYSE:CNP), it allows the company to monetize assets and still benefit from the cash flow they produce. This corporate shift will likely leave the shares trading more on news than performance in the near term. However, with an around 3.6% yield backed by seven consecutive annual dividend hikes, a key position in the growing Texas market, and the potential of the LP move, special situation investors might want to take a look.
Everything is Bigger in Texas
Electric capacity not keeping up with demand is something that can only go on for just so long before something gives. Since customers don’t like rolling blackouts, it’s likely that utilities will find a way to satisfy demand. And Texas regulators increasingly look willing to help. That should put companies like Calpine Corporation (NYSE:CPN), American Electric Power Company Inc (NYSE:AEP), and CenterPoint Energy, Inc. (NYSE:CNP) in a good position to benefit.
The article Texas Needs Electricity, These Companies Can Help originally appeared on Fool.com and is written by Reuben Brewer.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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