NRG seeking higher profile with investors
Neal St. Anthony
Published Oct 12 2001
NRG Energy this morning will report that it had
better-than-expected earnings of 71 cents per share for the
third quarter and that it is on target to deliver full-year
earnings of $1.35 in 2001, up nearly 25 percent from 2000.
NRG also today hosts its first analysts conference, and is
expecting 60 Wall Street analysts and portfolio managers. The
Minneapolis-based independent power generator, which is
seeking more investor visibility, also will announce that it
expects to boost earnings 25 percent again next year.
"Given our pipeline of proj ects and our prudent
risk-management strategies, we expect to earn approximately
$1.65 to $1.70 per share in 2002," said Chief Executive Dave
Peterson.
Despite a good track record of predictability and success, what
was Minnesota's biggest initial public offering saw its stock price
slip from a high of $37 per share last year -- amid record
demand and California power shortages -- to under $15 this
summer.
The stock has since rebounded to $18.12.
Regardless, that's a very modest 11 times projected 2001
earnings from a company that's increasing earnings 25 percent
annually.
What gives?
The answer is rooted in the scarcity-to-oversupply scares that
have marked the electric-power industry during the past year.
Moreover, some analysts believe that Minneapolis-based Xcel
Energy, which still owns 74 percent of NRG's stock, will have
to entirely spin off its faster-growing offspring to shareholders
in order for them to realize NRG's full market value.
For starters, 147 million of NRG's 198 million shares are held
by Xcel. That limits liquidity and the ability of big institutions to
get in and out of the stock.
For now, NRG is valued in the middle of the pack of its
independent-power generation peer group.
"If the market is correct, by valuing NRG and some of these
other stocks the way they are, the economy is really weak and
demand for electricity is going to drop much more than people
expect," said Larry Alberts, an analyst at American Express
Financial Advisors. "I don't think so."
Said Alberts: "The stock price performance for NRG has been
strong vs. the S&P 500 this month. And this is one of the few
industries with fairly decent earnings comparisons in 2001 vs.
2000. This analyst meeting should allow the 'Street' to get more
comfortable with the NRG story, particularly since Midwestern
companies tend to be overlooked."
NRG's stock tanked this summer amid reports of a declining
economy and a report by Salomon Smith Barney warning
that the price of wholesale electrical power was coming down
amid declining fuel prices and the rush to add huge amounts of
generating capacity in California and elsewhere.
On paper, it looked as though NRG and other power producers
would increase U.S. generating capacity by a third during the
next several years.
"Wall Street was getting different messages ... that there would
be a gazillion megawatts built," Peterson said.
In reality, analysts increasingly believe that consumption will
continue to grow by 2 percent-plus annually, despite
stepped-up conservation efforts, and that up to half the
projected capacity won't get built. In addition, some of the new,
more-efficient plants simply will displace older, inefficient,
pollution-spewing plants.
NRG is a 12-year-old generator of power in North America
and elsewhere that had earnings during the first nine months of
2001 of $225.9 million, or $1.17 per share, on revenue of $2.33
billion.
In an interview, Peterson -- a blunt, 59-year-old engineer
who has run NRG since its inception -- and Chief Financial
Officer Len Bluhm said the company has delivered crisp
financial results this year, investor skepticism notwithstanding,
because it's selling 80 percent of the energy it produces in the
United States on long-term contracts with local utilities.
That has insulated NRG from rapidly falling spot-market
prices, driven by falling natural gas prices and the slack
economy.
Moreover, NRG benefits from being a "peak" power producer
at some plants in the Northeast and elsewhere, where it fetches
premium prices.
Xcel has been coy about saying when or whether it would spin
off NRG to its shareholders, in what many analysts believe
would be the ultimate value-producer for shareholders.
Xcel, a Midwest and Rocky Mountain utility whose retail rates
are government-regulated, has promised its shareholders
earnings-per-share growth of up to 9 percent annually.
That's easier to do when Xcelcan add NRG's faster-growing
earnings to its own bottom line.
Ex-manager wins one
The dismissed former manager of the Bloomington office of
Morgan Stanley Dean Witter will get $700,000 in
compensation resulting from his contested demotion and
departure, an arbitration panel of the National Association of
Securities Dealers ruled this week.
Roger Anderson, 54, told the panel that he gave up a lucrative
book of business in then-Dean Witter's Madison, Wis., office in
1997 to become a non-producing manager at Dean Witter's
Bloomington office.
His attorney said he had a mandate to halt a high level of
client-account churning and sales of commission-generating
annuities.
"He reviewed all the sales in the office and turned down some
mutual fund 'switches' that generated a lot of commissions and
annuity sales that he concluded weren't in the best interest of
clients," said Joe Anthony of Anthony Ostlund & Baer.
"They fired him for doing his job [in 1999]."
Anderson claimed that regional management failed to back
him when he tried to shape up the operation and that he was
subsequently demoted from the $350,000-a-year job and
eventually forced out, unfairly conceding "hundreds of
thousands of dollars in unvested deferred compensation."
Anderson now works for UBS Paine Webber in Oklahoma
City.
After 16 hearing sessions involving a variety of witnesses, the
NASD panel-of-peers ordered what is now just Morgan
Stanley to pay Anderson $700,000 in compensatory damages.
"We disagree with the decision and we're considering an
appeal," said Brett Galloway, a New York City-based official
with Morgan Stanley.
PSB hires lawyer
Amy Rotenberg, a veteran media lawyer and trial attorney
with Dorsey & Whitney, will join Padilla Speer Beardsley, the
communications firm, next week as head of its new "Litigation
& Critical Issues Communications" practice to counsel
outfits facing legal trouble.
"Amy's legal and media experience make her ideally suited to
counsel organizations on the many issues that have the
potential to be tried in the court of public opinion as well as in
the court of law," said PSB Chief Executive Lynn Casey.
IBM honored
Catholic Charities has honored the local office of IBM for the
role it has played in helping to dignify homelessness at St. Paul's
Dorothy Day Center.
IBM, one of Catholic Charities' leading technology partners,
has worked to develop a community card program that provides
photo identification cards to all Dorothy Day Center guests.
The cards provide information on the services that Catholic
Charities provides each guest as well as background information
such as family contacts, mental and chemical health,
employment and disabilities.
As importantly, said the Rev. Larry Snyder, executive
director of Catholic Charities, the cards offer clients a sense of
"community and belonging."
Since the community card program was initiated in September
2000, more than 4,000 photo IDs have been issued to homeless
individuals in St. Paul. The Dorothy Day Center is known for a
comprehensive approach to meeting the needs of St. Paul's poor
and homeless, including meals, medical care, housing referral,
job training and kids' programs.
-- Neal St. Anthony can be reached at 612-673-7144 or
Nstanthony@startribune.com.
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