We came across a bullish thesis on Entergy Corporation (NYSE:ETR) on ValueInvestorsClub by cable888. In this article, we will summarize the bulls’ thesis on ETR. The company’s shares were trading at $81.66 when this thesis was published, vs. the closing price of $83.88 on Mar 21.
A close-up of an electrical power line with a bright blue sky in the background, highlighting the company’s selection of electricity and natural gas services.
ETR engages in the production and retail distribution of electricity in the United States. It generates, transmits, distributes, and sells electric power in portions of Arkansas, Louisiana, Mississippi, and Texas. It is a regulated entity with over 3 million customers in these areas.
ETR is well positioned to cater to the needs of data centers that require cost-effective energy resources, low regulatory burden while installation, adequate land and reliable networks. The pricing works out in favor of ETR as it looks to boost capex by 20% in the next 5 years. The downside to the rate case, a pricing mechanism that directly impacts the cost that customers have to pay, is also limited due to cost recovery riders.
The recent wins illustrate that the 20% growth in capex may be understated. These orders include a $10 billion data center by META and another $10 billion from Amazon. The Meta data center energy requirement is approximately 2.3 GW along with transmission infrastructure. ETR enjoys access to Henry Hub gas which offers a cost advantage, with its breakeven point at $0.05-0.08/kWh. This measure is a function of the price of natural gas and the efficiency of turbines. In comparison, the breakeven prices for coal and nuclear energy in the US are $0.12 and $0.10. Globally, the contrast is much higher with Germany and the UK offering breakeven costs at $0.35. Only the Middle East offers an economically viable alternative but the political risks overshadow the price benefit. ETR should see more wins with a potential $12 billion data center being planned by Hut 8, a Bitcoin mining company.
The streets expect a 2025 EPS of $3.89. After accounting for the new $12 billion project, the EPS could range between $4.15 and $4.33. This reflects an EPS growth of 6.7%-11.4%. A further 10% earnings upgrade can be expected in the next 12 months due to potential expansion in the region. At its current level, ETR offers a 15-20% upside with minimal risk in the next 1 year.
While we acknowledge the potential of ETR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ETR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
