Shares of utility CenterPoint Energy (NYSE:CNP) shot higher by nearly 20% at the market open on May 7 before settling down to a gain of around 11% by 11:30 a.m. EDT. The big news for the day was the company's earnings release, but it wasn't your run-of-the-mill recap of the previous quarter.
CenterPoint posted a first-quarter 2020 loss of $2.44 per share versus a profit of $0.28 in the same period of 2019. That's terrible by any stretch of the imagination. But there's some caveats, including roughly $1.6 billion worth of impairment charges taken in the just-ended quarter. Those charges relate mainly to the company midstream segment, which consists of a stake in Enable Midstream Partners. The midstream partnership's units have fallen nearly 80% from their mid-2018 peak. This is where things get interesting.
At the same time it released earnings, CenterPoint sent out a separate news item that announced a $1.4 billion equity investment by a consortium including Elliott Management, Fidelity, and Bluescape Energy partners, among others. The cash infusion is to be used to pay down debt and help fund future spending plans. The utility also announced two new board members and a comprehensive business review that is expected to be complete by October 2020. Taken together with the big writedown, it looks like CenterPoint is looking to reset the business so it can work from a clean (or at least cleaner) slate going forward. Investors appear to like the idea.
CenterPoint's adjusted earnings were $0.65 per share versus adjusted earnings of $0.46 in the same quarter of 2019. That's not bad, but the real story here isn't earnings, it is the equity investment and business revamp that's likely to take shape now that there are activist investors on board (figuratively and literally). Conservative investors should probably stay on the sidelines here until the comprehensive review is complete and there's a clearer outlook for what the future holds. However, it's pretty obvious given the stock action after the announcement that investors think the future looks brighter than it did just a couple of days ago.