On Jun. 20, 2012, Standard & Poor's boosted Entergy Corp's (NYSE: ETR) credit outlook to "stable." The rater noted "sustained and consistent improvement" at regulated operations and "effective management" of nuclear plant relicensing.
That's long overdue recognition. But the likely catalyst for the upgrade was the late-May decision by the Nuclear Regulatory Commission (NRC) to relicense the Pilgrim plant in Massachusetts for another 20 years.
Combined with the appointment of a more conciliatory NRC chairman, relicensing the Indian Point plant in New York now seems set before 2014, when the current license expires.
The Northeast US wholesale electricity price has fallen sharply due to cheap natural gas. As low-cost and emission-free baseload power, The utility stock's output is critical to the region, and CFO Leo Denault states it's "pretty well hedged in 2012 and 2013." But low prices will keep a premium on cost controls.
Fortunately, the regulated utility will more than pick up the slack, with $6 billion in targeted capital spending over the next three years. The natural gas liquids boom ensures industrial sales growth will be robust for some years.
And the spinout and merger of interstate transmission assets with ITC Holdings Corp (NYSE: ITC) is on track to provide a windfall gain of $10 per Entergy share.
Until there's a final ruling on Indian Point-and court challenges to the Vermont and Massachusetts nukes are resolved-Entergy shares are unlikely to reclaim their 2008 high of $124-plus.
But the balance sheet is healthy, and the dividend is well covered with regulated utility earnings alone.
Disclosure: I am long ETR.