Typically, utility companies like CenterPoint Energy (NYSE:CNP) aren’t known for generating excitement in the stock market. While they play a crucial role in infrastructure, stocks like CNP are often considered uneventful. However, given the recent underperformance of benchmark equity indices, it might be the right time to consider adding CenterPoint to your investment portfolio.
Fundamentally, CenterPoint benefits from a natural monopoly in the electric and natural gas services sector, which deters potential competitors due to the high entry barriers, including regulatory hurdles, licensing, and permit requirements.
Furthermore, companies like CenterPoint maintain a steady and predictable business model. Although their financial performance may not be outstanding, CenterPoint has consistently been profitable on an annual basis, with positive operating income during challenging years like 2015 and 2020.
In terms of income, CNP stock offers a 2.74% yield, making it an attractive choice for passive income seekers. With a dependable industry and a low 60-month beta of 0.89, CenterPoint provides a reasonable option during uncertain times, potentially making it a strong choice for investors.
Strong Analyst Support for CNP Stock
CNP stock enjoys robust analyst support, currently holding a moderate buy consensus rating. This consensus is made up of five strong buy recommendations, two moderate buy recommendations, and four hold recommendations. Notably, no analysts have issued a sell rating.
Additionally, the mean price target for CNP stock stands at $31.50, with some sources suggesting a target of $32. This represents a double-digit increase from the closing price of $27.95, and the high-end price target of $34 implies nearly 22% growth potential.
Options Market Signals in Favor of CNP
Analyzing the derivatives market, CNP stock options have experienced declining implied volatility (IV) from August 1st to September 1st. However, IV has recently increased noticeably, creating a volatility premium that has encouraged some traders to sell options contracts (more details to follow).
On a broader scale, the volatility smile for CNP’s options, which plots IV at various strike prices, appears skewed toward the bullish sentiment:
- At a strike price of $27, IV for CNP stock options is at its lowest point, measuring at 0.16. From this point, IV moves at a similar pace, whether deep in the money (ITM) or far out of the money (OTM).
- However, a higher rate of IV movement is observed in the OTM direction between strike prices $27 and $39, indicating a belief among traders in the potential for upward price swings.
Institutional Traders Show Confidence in CenterPoint
Monitoring institutional activity in the derivatives market often carries significant weight, as these entities can influence market movements. Recent institutional activity hints at their expectations for CNP stock.
CNP was prominently featured in Barchart’s screener for unusual stock options volume, with total volume reaching 4,106 contracts against open interest of 11,054. Notably, the delta between Thursday’s session volume and the trailing one-month average reached 1,009.73%.
Interestingly, the breakdown of transactions reveals that call volume was relatively low at 40 contracts, while put volume was significantly higher at 4,066 contracts. While a high put volume might seem bearish, it’s essential to consider whether these puts were acquired or sold. Selling puts implies a different rationale, often indicating optimism.
Fintel’s screener for options flow provides further insight. During the Thursday session, traders sold 4,000 $30 puts with an expiration date of January 19, 2024. This suggests that these entities anticipate CNP stock to trade around $30 or higher, allowing them to collect substantial premiums, which have been boosted by the increased IV.
Conclusion: A Boring but Reliable Investment
In summary, CNP stock may not be the most exciting investment, but it offers compelling opportunities. Analysts are bullish on its prospects, the options market signals a positive sentiment, and institutional players are selling puts with an optimistic outlook for CenterPoint. While all investments carry risks, CNP appears to be a relatively safe and attractive choice for investors.
Featured Image: Freepik @ mykola59
Author Faith Yakubu