Hi Clement,
You're doing some great digging on this one lately. :)
Re: Gretchen Morgenstern/NY Times ~ I've read her for years and I like her work. Last weekend, she did a piece on Jack Grubman the SSB analyst who led thousands of investors to losses in the telecom sector. It's an area of interest for me and I was very impressed by her understanding of the fact case there. I'm not as familiar with the financial aspects of Calpine's business, but this quote seems especially troubling to me:
Perhaps the most important similarity between the two companies is this: Both rely on the kindness of investors and lenders. Without deep support from the capital markets, neither company can operate. Calpine, which went public only in 1996, tapped public capital markets seven times this year, raising $5.7 billion.
That strikes me as an extremely risky basis for valuing CPN. I would refer you to the case of McLeod USA (MCLD)
finance.yahoo.com
which relied very much upon the same "support of capital markets" to maintain its cash flow. The last infusion of bond money of significance occurred last January. As you can see, it's been a bad year since then for the company.
So, I see a couple of risks in the CPN story. First of all, the stock has for the past several years been priced based on the growth potential of the company. I will submit that the IPP market looks drastically different today than it did a year ago, with the industry generally heading toward a surplus of supply, as opposed to the anomaly of the California energy markets last winter and spring. Then there is the question about just how conservative investors are going to feel about the derivatives business aspect of CPN going forward. There is a taint on Arthur Anderson as well as ENE, which I can't help but think is going to put an upper limit on the exuberance of momentum players for CPN equity. I don't see the company to be in danger, financially speaking. I merely think it is no longer the growth stock darling it once was.
-R. |
