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Gold/Mining/Energy : Calpine Corp
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To: Bert Torres who wrote (9)11/13/1997 11:20:00 AM
From: kolo55  Read Replies (1) of 22
 
Earnings report analysis.

The stock dropped on the earnings announcement. I'm kicking myself for not seeing the disappointing earnings. Part of the shortfall was due to a capacities payment of $1.7M not being included in the quarter; this would have reduced Before tax operating earnings by that amount. The rest of the shortfall ($3M) was due to the high price of natural gas this summer. This was predictable; I should have known the contracts are probably based on PG&E pricing, which in turn will lag gas price increases due to regulatory delays. But in the future, the company is trying to mitigate this effect. But i don't think they can eliminate it. Whenever we see an atypical rise of gas prices in the summer, when gas prices usually are lowest, this company will hav e their profit margins squeezed. But as soon as gas prices level off, the company will be able to adjust their prices appropriately and profit margins should return to normal.

We're now into the two worst quarters of the year for this company. The gas price remains high for now, but the futures prices are lower looking out 3-9 months. I think the stock has corrected down way too far, but you'll need patience. The next several quarters will be breakeven at best due to seasonal factors. The next big quarterly report will be for the JunQ next year.

Also remember this company is carrying a lot of debt. An appreciable risk is that the company will have a problem at one of its plants. But even considering all of this, the potential earnings of $1.80 to $2.00 next year make this stock a great value here.

Paul
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