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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (2981)	1/8/1998 1:40:00 PM
From: kolo55	Respond to of 78748

I know a bit about Calpine(CPN). There is thread on SI about Calpine. It got knocked when it missed the Q last fall because of unseasonal strength in natural gas prices last summer, and the slowness in recovering the increased fuel costs through their contracts. This stock is highly leveraged, but should have some great earnings next year(more precisely,next summer). I think the stock currently at 16 could hit 25-30. I also know the insiders at the company are very bullish on their prospects, and are probably buying shares in the last several months (I can't say anymore than that on this subject). Calpine is HQ in San Jose, my hometown. I need to do some research on the industry sector. The sector is not universally recognized, but on SEC Edgar they call it Cogeneration Services and Small Power Producers (code 4991). CPN does about $200M a year, but this is growing fast. Some of the other companies listed on Edgar in the same sector include AES corporation in Arlington,VA(~$1200M), Destec Energy in Houston,TX(~$500M), Ogden Projects in Fairfield,NJ (~$700M) and Oglethorpe Power Corp in Tucker,GA(~$1000M). I know very little about these companies at this point. You noted that I like to concentrate on sector analysis. I am attracted to this sector because I am quite familiar with cogen plants and I view the growth prospects favorably. Next to hydroelectric power, and nuclear power (minus "sunk costs" and decommisioning costs, both fixed costs), cogeneration power is the cheapest power out there, provided they have good reliable captive customers for the steam. In a deregulated world, the independent power producers have a significant growth opportunity. Essentially all new power capacity will probably be cogen gas fired plants. Most cogen plants up to now, were often owned and operated by the captive steam user, so most were owned by oil or chemical companies, paper, food processors etc. For example, Mission Energy was part of Texaco and provided steam for oil steamfloods in Kern county, California etc. and Midland Cogen partners provides steam and power to Dow Chemical's huge Midland, Michigan complex. But now, many companies prefer to stick to their knitting, and are looking to outsource cogen suppliers. CPN has picked up a lot of cogen plants. Also CPN has been building some cogen plants. They have been spending the money, and issuing some stock, and haven't seen the revenues and earnings hit home yet. Next year Calpine was supposed to earn about $2.25 a share, significantly higher than this year, and so at 16 looks cheap. Several caveats; their earnings are strongly seasonal, breaking even in the winter, and making all their money in the summer when electric prices are stronger and gas prices are lower. Also some of the major utility companies are pursuing this sector, like Duke Power. Duke just bought some plants from PG&E in California, and surprised everyone with how much they paid. I was going to calculate a $/KW price for those plants and value CPN generating capacity that way, but haven't done it yet. Until then I view Calpine as GARP play. Well, I only have an incomplete story, but that's what I have so far. I would like to investigate the sector, if I had the time. i'm not surprised that this stock showed up on Richard's list. Paul