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Gold/Mining/Energy : Big Dog's Boom Boom Room

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To: chowder who wrote (29986)	2/18/2004 5:49:43 AM
From: jim_p	Read Replies (3) of 206092

02/17/04 03:50 pm EST... S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF RELIANT RESOURCES (RRI 7.6*****): Q4 operating loss of $0.05 vs. $0.10 loss is eleven cents better than our estimate. GAAP loss was $0.10 vs. $0.60 loss. The shares are off more than 5% today, as RRI guides '04 EPS estimates lower. However, we think RRI's '04 wholesale segment guidance will prove conservative. The co. has beaten EPS estimates 2 quarters in a row and Q4 wholesale results were much better than November guidance. We project over $1.50 EPS in 2008, based on RRI's guidance for earnings in "market recovery." Assuming a 10X P/E and discounting back 4 years at 10%, we arrive at our target price of $10. /C.Shere-CFA\ Looks like S&P is not shaken by the .25 guidance for 2004. 1. Common sense would lead you to the conclusion that since 04 earnings have lots of leverage and they can make large swings either way with small changes in things that management has no control over like the weather, management is going to lean towards being conservative. 2. The new management wants a track record of making earnings, not having to explain to shareholders each Q why they were wrong. New management has a record of being very conservative. 3. Many people have lost their jobs in order to accomplish the $140MM in cost cuts in 03/04. This is not an easy task for management to let go co-workers and friends who they know need the pay check and will suffer as a result. $200MM in additional cost cuts over 2004/2005 will result in more loss of jobs to come. Does anyone really believe that management would terminate fellow employees and then turn around and paint a rosy picture for a dramatic turn around in 04??? I don't think so. The bottom line is RRI has the assets that will generate over $2.00 per share in earnings in a normal market. That may happen sooner in their markets than it will in the SE or SW. New plant construction is still being approved in markets where there is a need for further expansion in certain markets as we saw being announced in Colorado Springs yesterday. At some point in time the market will get tight again in RRI's market and these same assets will be producing earnings of $3.00 per share and greater (it always comes sooner than projected). The reasons for the institutional buying we saw over the last few weeks is to be there when the markets are tight and they can unload when RRI is selling for $20-30.00 per share near the top of the next cycle. This may happen in 06 or 07, but it will happen and in the mean time buy the dips and take advantage of the opportunities that are given to you by the markets that are driven by emotion and not common sense. Jim

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