CPN: Calpine Corporation Message Board

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Gold/Mining/Energy : CPN: Calpine Corporation

FRO 23.66

-0.3%

Nov 7 9:30 AM EST

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To: Bob Rudd who wrote (217)	12/19/2001 11:12:02 AM
From: Clement	of 555

Bob, I still believe that 20-30% earnings growth (not to be confused with top line growth) is still feasible (bear in mind that Calpine's capacity will more than double in the next year) -- but this isn't IMHO really that relevant. I continue to find it incredible and somewhat ignorant that public commentators were saying that investors were worried that Calpine couldn't grow as quickly -- this when Calpine was at a historical P/E of 7; as if Calpine had to maintain earnings growth of 30% just to get a p/e of 7!?? For instance according to Goldman Sachs: "We believe that even under a worst-case liquidation scenario, CPN is worth $31/share. We base our valuation on a $650/KW valuation for 29,000MW of generation, $1.25/MCF for 1.7 TCF of natural gas reserves, and the above-market NPV from the company's portfolio of power supply agreements." So let's begin with a baseline level of growth and consider that Calpine is still only a tiny fraction of the energy market as a whole (have a look at their website, look under jobs, then look at the map where they have facilities built and proposed). Then consider that Calpine has the means to be the low cost producer in the markets where they locate because of old dilapidated, inefficient plants. It is critical to note that Calpine will grow not only through growth in need (which is marginal) but largely in taking market share. The growth in energy would have never have been 20-30% a year and I don't think anyone had any illusions that it would be. (It would be kinda funny to watch though to have such a huge jump in energy demand... I digress). Calpine will experience growth. Calpine is trading significantly below what they are worth with their current plants absent any growth at all! So what I do not understand is -- where is the risk? (Incidentally, I believe Calpine was valued too highly when it travelled north of $50 given its capacity at the time... mind you if Calpine is able to complete this next set of expansion on time....)... Anyway, hope that helps, Clement PS I have no idea if Calpine is GE's largest turbine client... it could be dynegy as well.

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