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Strategies & Market Trends : IPPs and Merchant Energy Co.s
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To: Larry S. who wrote (3121)2/27/2004 10:07:58 AM
From: jim_p  Read Replies (1) of 3358
 
Here's my take on where we are on RRI.
There are a large number of investors like yourself that got out on the lower guidance for 04. The stock has now stabilized and there are not a lot of sellers left. As the stock creeps back up a number of them will panic to get back in at a time when the selling has dried up.

We also are starting to see the new leadership in CA going forward with reasonable settlements as in WMB case this week. It's not wise to be on the sidelines watching if RRI happens to make an announcement which could come at any day.

4Q and year end results were actually very good, and there are many good reasons for management to lower guidance for 04 (lay offs, in settlement talks with CA, new conservative management, high earnings leverage to things not in managements control, etc etc).

1. In 2003 RRI increase cash flow before W/C adjustments for the fourth straight year to $801,012 or $2.73 per share. Not bad for a company at the bottom of a deep and long down cycle.

2. In 2003 RRI's capital spending net of assets sales was a negative $1.04B

3. In 2003 RRI retired over 31% of their debt or $2.88B.

4. 4Q beat guidance by a nice margin for the second quarter in a row.

Anyway you look at RRI it is still dirt cheep and the only question is how much will the power markets improve over the next several years as we come out of an incredibly deep and long down cycle. As a rule of thumb, the longer and deeper the down cycle the longer and higher the next up cycle because there will be a lot of memories from both the sector and it's creditors that will delay capital spending as the market improves.

If you want to play the recovering IPP sector it's also becoming clear that RRI is the only safe way to play it.

JMHO,

Jim
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