Hawkeye, thanks for your response a while back. In the interim, a buddy of mine in the industry sent me the article I have pasted below. Old article (last month) and not very useful. Just interesting that he kind of put it under my nose recently. Who knows? I will buy when I see clearer direction upward.
PS. You spelled rumor wrong. :-)
Enron: The Power's Back On Rousing A $20 Billion Giant (Fortune Magazine
Time Inc., 4/98)
Copyright 1998 Dow Jones & Company, Inc.
Jeff Skilling, president of Enron, one of the world's leading integrated
natura -gas and electricity giant, has a reputation for being equally
smart and arrogant. Not surprisingly, he is far more comfortable
describing Enron's success between 1990 and 1994, when shareholder value increased 150% - more than twice as fast as the rest of the market - than he is explaining why the company has under performed both the S&P 500 and its peer group for the past two years. "I never want to have another analyst meeting like the one we had second quarter last year," says Skilling in an uncharacteristically humble tone. "Telling a crowd of people we were writing off $550 million - well, there were not a lot of happy campers, and I took it kind of personally."
Those campers are a lot happier today. For the first time in years, Wall Street is excited about the $20 billion company, pushing the stock from $36 last November to a recent $48. Even a longtime pessimist like Prudential analyst Carol Coale says, "I feel so positive about it I upgraded it to a buy" - something she hasn't done since 1994.
Why the switch? For Coale and others, much of it has to do with Enron's new way of relating to Wall Street. Whereas Enron used to deny its problems (which included a bad natural-gas investment, poor earnings quality, and a well-publicized feud with the Indian government over a power plant), the company now not only acknowledges its problems but is trying hard to prove it has fixed them.
In addition to the $550 million charge taken in second-quarter 1997 -
which cleared the books of past mistakes - and resolution of its India
trouble, Enron claims it has fixed its biggest problem: a declining
earnings growth rate. Driven by strong growth in its gas services
business, Enron's annual earnings had grown by 16% to 20% between 1990
and 1994. But by 1995, increased competition and heavy investment in its international electricity division brought income from core operations down to 11% in '95 and 1% in '96. This was especially bad because in '91 Enron promised investors 15% earnings growth annually. Enron plugged the gap with one-time gains.
To be sure, there are good reasons to take post-1997 Enron seriously.
First, the company regained credibility when it began presenting its
earnings numbers a lot more clearly. Then, at its January 1998 analyst
meeting, Enron finally unveiled its retail electricity business plan and gave analysts a tour of its so-called war room, where big retail
contracts are put together. Once suspicious of Enron's ability to make
money in a hypercompetitive market, analysts are now talking about
Enron's retail arm as the solution to its earnings growth problem. DLJ
analyst Curt Launer thinks the plan could add $575 million to Enron's
operating income within the next five years.
Famous for innovative thinking, Enron has led the charge for
deregulation and consumer choice, and has created new businesses such as electricity trading, in which kilowatts are bought and sold like pork bellies. Enron is also developing products and services it hopes will provide the kind of revenue that caller ID and call waiting have for phone companies.
That said, even optimists realize that Enron still has a lot of work to do. Says John Gavin, an analyst with American Express Financial
Advisors: "If Enron's plan works, not only will the way we buy
electricity be forever changed, but people will wish they had invested. But without good execution, Enron will just be a bunch of smart people with great ideas." |
