Grade: F — Major Red Flags
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2026-02-19) + Yahoo Finance
Auditor: Deloitte & Touche LLP — Clean opinion (1 critical audit matter: impact of rate regulation on financial statements)
One-line verdict: CenterPoint Energy serves approximately 7 million metered customers across electric transmission and distribution (Houston Electric), natural gas distribution (CERC), and Indiana electric generation (SIGECO). The F grade reflects four fails, including a genuine anomaly: AR outpacing revenue for two consecutive years. The company also carries $3.5B in goodwill (32% of equity) and is in the middle of a major strategic pivot — divesting its Ohio natural gas operations for ~$2.3B to NFGC while expanding its 10-year capital plan. CenterPoint had nearly $23B of consolidated debt at year-end, with Debt/EBITDA of 6.2x — the highest leverage ratio in this utility batch. Revenue grew 8.3%, CFFO grew 16.2%, and net income rose modestly to $1.05B.
| Metric | Result |
|---|---|
| Red Flags | **4** (AR vs revenue, FCF, cash vs debt, post-acquisition FCF) |
| Watch Items | **2** (goodwill/intangibles, leverage) |
| Checks Completed | **15/18** |
| Beneish M-Score | **N/A** (insufficient data) |
| Altman Z-Score | **0.71** (distress zone) |
Business: Multi-State Electric and Gas Utility
From the 10-K, CenterPoint Energy operates through three major subsidiaries: Houston Electric (electric T&D in Greater Houston), CERC (natural gas distribution across multiple states), and SIGECO (Indiana electric generation and gas distribution).
CenterPoint is currently divesting its Ohio natural gas operations: "On May 5, 2025, CERC Corp. entered into a Securities Purchase Agreement with National Fuel Gas Company (NFGC) to sell 100% of the membership interests in Ohio Gas for an aggregate purchase price of approximately $2.3 billion, including: (i) cash consideration of approximately $1.1 billion... and (ii) a 364-day seller promissory note, in the original principal amount of $1.2 billion." The transaction is expected to close in Q4 2026.
Houston Electric: TEEEF and Storm Resilience
A notable risk factor from the 10-K: "Houston Electric's use of TEEEF is subject to various risks, potential performance issues and allegations about Houston Electric's procurement and deployment of the resources (including the planning, execution and effectiveness of the same), regulatory and environmental requirements, and timely recovery of capital."
TEEEF (Texas Energy and Environmental Fund) relates to Houston Electric's storm resilience investments. Houston's exposure to hurricanes and extreme weather events creates a unique capital need among these 10 utilities.
Revenue and Income
| Line Item | FY2025 | FY2024 | Change |
|---|---|---|---|
| Total Revenue | $9,357M | $8,643M | +8.3% |
| Gross Profit | $4,216M | $3,976M | +6.0% |
| Net Income | $1,052M | $1,019M | +3.2% |
| Metric | FY2023 | FY2024 | FY2025 | Trend |
|---|---|---|---|---|
| Revenue | $8.2B | $8.6B | $9.4B | Growing |
| Net Income | — | $1.0B | $1.1B | Growing |
| Gross Margin | 46.0% | 46.0% | 45.1% | Slight compression |
| Net Margin | — | 11.8% | 11.2% | Slight compression |
| ROE | — | — | 9.4% | — |
Margin compression of -0.9pp while revenue grows 8.3% suggests cost increases outpacing rate recovery, potentially related to storm restoration costs in Houston or rising natural gas costs.
Cash Flow
| Metric | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Operating Cash Flow | — | $2.1B | $2.5B |
| CFFO / Net Income | — | 2.10 | 2.36 |
| Free Cash Flow | — | — | -$2.4B |
| Cash on Hand | — | — | $548M |
CFFO grew 16.2% — outpacing revenue growth of 8.3% — which is a positive signal. The CFFO/NI ratio of 2.36 confirms profits are well-backed by cash. However, CapEx of $4.9B consumed all CFFO and then some, producing -$2.4B FCF.
Goodwill: $3.5B
From the 10-K: "While CenterPoint Energy has identified and recorded goodwill impairments in the past, no impairments to goodwill were recorded during the years ended December 31, 2025, 2024, and 2023." The $3.5B goodwill largely relates to the 2019 Vectren acquisition. At 32% of equity, it warrants monitoring but is not at critical levels.
Debt Load: $23B
From the 10-K: "As of December 31, 2025, CenterPoint Energy had nearly $23 billion of outstanding indebtedness on a consolidated basis, which included $714 million of non-recourse Securitization Bonds." The company announced an expanded 10-year capital plan in February 2026, which will require continued debt issuance.
The 18-Point Screening
Revenue Quality
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO | Pass | 31 days, +1 day YoY. Stable |
| A2 | AR vs Revenue | **FAIL** | AR outpaced revenue for 2 consecutive years |
| A3 | Revenue vs CFFO | Pass | Revenue +8.3%, CFFO +16.2%. Cash outpaces revenue |
A2: AR outpacing revenue for two consecutive years in a regulated utility is unusual. Houston Electric's receivables "are primarily concentrated in a small number of REPs" (Retail Electric Providers). From the 10-K risk factors: "any delay or default in payments of these receivables could adversely affect Houston Electric's business." The concentration of receivables in a few large REPs rather than dispersed consumer accounts creates collection risk that could explain the AR growth trend.
Expense Quality
| # | Check | Result | Detail |
|---|---|---|---|
| B1 | Inventory | Pass | +2.5% vs COGS +10.2%. Normal |
| B2 | CapEx | Pass | CapEx +7.9% vs revenue +8.3%. Aligned |
| B3 | SG&A Ratio | N/A | Insufficient data |
| B4 | Gross Margin | Pass | 45.1%, -0.9pp. Stable |
Cash Flow Quality
| # | Check | Result | Detail |
|---|---|---|---|
| C1 | CFFO vs NI | Pass | Ratio 2.36. Strong |
| C2 | FCF | **FAIL** | FCF negative for 3+ years. Structural |
| C3 | Accruals | Pass | -3.1%. Low |
| C4 | Cash vs Debt | **FAIL** | Cash $548M covers 2% of $23.0B debt |
Balance Sheet
| # | Check | Result | Detail |
|---|---|---|---|
| D1 | Goodwill + Intangibles | Watch | $3.5B = 32% of equity |
| D2 | Leverage | Watch | Debt/EBITDA 6.2x. Highest in batch |
| D3 | Soft Assets | Pass | Other assets -10.1% vs revenue +8.3% |
| D4 | Impairment | N/A | No write-off data |
D2: Debt/EBITDA of 6.2x is the highest among these 10 utilities. The expanded 10-year capital plan announced in February 2026 will likely push this higher unless EBITDA growth accelerates to match. Interest coverage needs close monitoring.
Acquisition & Manipulation
| # | Check | Result | Detail |
|---|---|---|---|
| E1 | Serial Acquirer | **FAIL** | FCF after acquisitions negative for 3 years |
| E2 | Goodwill Surge | Pass | Goodwill -10% YoY |
| F1 | M-Score | N/A | Insufficient data |
Deloitte Critical Audit Matter: Rate Regulation
From Deloitte's report: "Management has determined its regulated operations meet the requirements under accounting principles generally accepted in the United States of America to prepare its financial statements applying the specialized rules to account for the effects of cost-based rate regulation. The impacts of accounting for the economics of rate regulation are pervasive to the financial statements and disclosures."
Deloitte noted: "The Company's rates are subject to approval by federal and state regulators and the effect of regulation on the financial statements is significant to the Company."
Key Risks
1. Houston storm exposure. Houston Electric's service territory is highly exposed to hurricanes and extreme weather. Storm restoration costs can be substantial and recovery through rates may face regulatory pushback.
2. Highest leverage in batch. Debt/EBITDA of 6.2x combined with an expanding capital plan creates refinancing risk, particularly if interest rates remain elevated.
3. Ohio divestiture execution. The $2.3B Ohio gas sale to NFGC includes a $1.2B seller note — meaning CenterPoint won't receive full cash at closing. The transaction's Q4 2026 expected closing adds execution uncertainty.
4. REP concentration risk. Houston Electric's AR concentrated in a small number of Retail Electric Providers creates credit risk distinct from typical utility consumer receivables.
Altman Z-Score and F-Score
| Model | Score | Interpretation |
|---|---|---|
| Altman Z-Score | **0.71** | Distress zone. Structural |
| F-Score (Dechow) | **0.49** | Very low fraud probability (0.18%) |
Summary
| # | Check | Result |
|---|---|---|
| A1-A3 | Revenue Quality | Pass-Fail-Pass |
| B1-B4 | Expense Quality | Pass-Pass-N/A-Pass |
| C1-C4 | Cash Flow Quality | Pass-Fail-Pass-Fail |
| D1-D4 | Balance Sheet | Watch-Watch-Pass-N/A |
| E1-E2 | M&A Risk | Fail-Pass |
| F1 | Beneish M-Score | N/A |
Grade: F — mostly structural, one genuine anomaly plus highest leverage in batch.
Three of CNP's four fails are structural utility features. The genuine concern is the A2 fail (AR outpacing revenue for two consecutive years), which is linked to Houston Electric's concentrated REP receivables structure. The two watch items (goodwill at 32% of equity, leverage at 6.2x) add up to a utility that is more financially stretched than average. The Ohio divestiture should reduce complexity but the $1.2B seller note means deleveraging benefits are delayed. CFFO growing at 16.2% versus 8.3% revenue growth is a positive signal, and the F-Score of 0.49 (0.18% fraud probability) confirms no manipulation.
**Disclaimer**: This report is based on CenterPoint Energy's FY2025 10-K (SEC EDGAR, filed 2026-02-19) and public financial data. This is NOT investment advice.
Data: SEC EDGAR 10-K (Filed 2026-02-19) + Yahoo Finance
Auditor: Deloitte & Touche LLP (Unqualified opinion, 1 critical audit matter)