As a subscriber to Technology Investor Newsletter, I just received this email. Calpine longs and those watching this stock might be interested to see it.
> We add Calpine (CPN) to the Technology Investor Portfolio of Recommended Stocks. You can read our entire logic in "Profiting from Power Generation," in our July issue, which is posted on our Web site at technologyinvestor.com. Click on the Monthly Newsletters button after you login. The paper issue is at the printer and will mail this week.
Calpine is the top builder and operator of natural gas-fired, technology-driven power plants in the US. It is beautifully taking advantage of all the changes sweeping the energy business - from deregulation, to exploding demand, to new more efficient technology, to new sources of fuel to just plain new, modern (for the utility industry) management. In short, Calpine is a new paradigm (to use a horrible cliché) of how you generate energy and make money from it.
Calpine's goals are: to be the biggest power company and to be the lowest-cost electricity producer. Both goals are achievable. It has 6,300 megawatts of generating capacity and more that 32,000 megawatts of generating facilities either in construction or on the drawing board - more than any other company. By 2005, the company plans to be the largest producer of gas-fired electricity with a capacity of 70,000 megawatts. It's adding megawatts at an annual growth rate of 62%.
Calpine's $20 billion expansion is the largest in the history of the power industry. Calpine targets are the west coast, mainly California, Texas, New England and New York. It's staying out of the mid-west to avoid competition with cheap coal. In April, Calpine bought 46 natural gas turbines from General Electric's (GE) power systems division. With the purchase, the company has firm orders in place for the delivery of 203 turbines, which will produce about 50,000 megawatts. Within five years, it will spend $7 billion to buy a total of 220 gas turbines. The design of these so-called combined-cycle plants are capable of very flexible operation. They can be up to 50% to 60% efficient, compared to only 30% to 35% efficient for traditional electricity plants - the ones we have today. "Efficient" means how well they convert gas energy into electrical energy, i.e. electricity. Gas plants also need fewer people, less maintenance.
Calpine is taking steps to ensure that it has the natural gas it needs. It has a number of long-term fixed-price power sales agreements with suppliers. It has taken the position that 25% of its natural gas needs will come from its own reserves. To this end it has started to buy gas fields. The most recent purchase, in February 2001, is Encal Energy in Calgary, western Canada, for $1.2 billion. That follows the earlier purchase of TriGas Exploration, in California's San Joaquin valley. Last year, the company spent $600 million on natural gas purchases. In 2005, it expects to spend $10 billion, enough to buy 10% of the total US output. Today, the company owns more than 500 billion cubic feet of proved natural gas reserves and produces about 160 million cubic feet of gas a day. This is sufficient for 1,100 megawatts of power generation.
Calpine is also the world's largest producer of geothermal energy. At the 'geysers,' an area roughly 100 miles North of San Francisco, Calpine operates 19 of 21 geothermal plants. It is the largest producer of geothermal energy in the world. Geothermal technology channels steam produced under the earth's crust into turbines to generate electricity.
For the quarter ended March 2001, net income was $94.8 million, a 424% increase over the $18.1 million earned in Q1 2000. EPS was up 329% to $0.30 a share. Revenues for the quarter were up 410% to $1.2 billion. Calpine had a remarkable year in 2000, when profits were $324.7 million, on sales of $2.26 billion, up 237% over 1999 profits of $96.2 million. Revenues are expected to grow at an 84% annual average through 2004. It is comfortable with a 40% EPS growth for the next four or five years.
This year, Calpine is looking for revenue of $5.5 billion, with earnings of $1.84 a share. This reflects a forward P/E of about 30. The P/E will drop to about 24 in 2002, when revenues are expected to hit $7.4 billion and earnings will come in at $2.29 a share.
Harry Newton
mailto:Harry_Newton@TechnologyInvestor.com |
