Bramwell Likes Calpine:
Friday September 1, 7:00 am Eastern Time
Morningstar.com
Selected Special's Bramwell Likes Calpine
By Elizabeth Bramwell
Elizabeth Bramwell is a thematic investor who attempts to identify secular trends and firms that are positioned to benefit from these changes. She follows a low-turnover approach that emphasizes firms with strong sales growth and attractive valuations relative to their growth rates. Today, she highlights Calpine (NYSE: CPN - news).
Why Bramwell Likes Calpine
``Calpine is a pure-play independent power producer. The company's primary focus has been on the domestic energy markets. Calpine develops natural gas-fired generating plants in selected regions of the country based on the following: strong demographic growth, deregulation, and where older less efficient facilities exist. The company currently has operating and development opportunities in 21 states.
''The company is projected to grow more than 40% per year, driven by planned projects and its targeted goal of 40,000 megawatts of installed capacity by 2004. The company enjoys 'first mover advantage' in developing state-of-the-art generating facilities. It currently has approximately 197 gas turbines on order for delivery between 2000 and 2004. It maintains a competitive advantage, since an order for a gas turbine placed today would not be delivered until at least 2003.
``The power industry is the third-largest industry in the United States, with an estimated capacity of 785,000 megawatts. There are several dynamics taking place. Demand growth for electricity is increasing faster than expected at 2% to 3% per year. Demand is being driven partly by the Internet, the electronics industry, handheld devices, and server farms. Approximately 300,000 megawatts of new capacity (40% increase) may be needed by the end of 2004 as inadequate supply and old plants drive the need to rebuild the U.S. infrastructure.
''At Bramwell, we try to focus on emerging themes or position our portfolio ahead of a secular trend. Calpine is a stock that meets those criteria, a pure play on independent power generation with high- growth potential. Although the stock has had a big move recently, we still believe the valuation to be compelling. The stock is selling at an estimated P/E-to-growth ratio of 1.4 for 2000 and 1.2 for 2001. The valuation is attractive compared with most high-growth companies, which sell at a P/E-to-growth multiple considerably above that level. The S&P 500 index, a common benchmark, has a P/E-to-growth ratio of an estimated 2.3 on 2001 earnings.``
Fund Manager Picks will not run on Labor Day. Beginning this month, however, the column will appear on Mondays, Wednesdays, and Fridays. Coming Wednesday, Berkshire Focus' (Nasdaq: BFOCX - news) Malcolm Fobes.
Disclaimer: The information provided and opinions expressed here are those of the Forum guest and are not advice or recommendations of Morningstar, Inc. All information and opinions are for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. In addition, the views and opinions expressed in this article may change based on market and other information.
Paul Herbert and Kunal Kapoor, analysts at Morningstar, contributed to the article. They can be reached at paul_herbert@morningstar.com and kunal_kapoor@morningstar.com. No portfolio-planning questions, please.
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