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Going Nuclear Into Elections (EXC, NRG, D, DUK, PGN, AEE)

Electric utility Exelon (NYSE:EXC) this morning revised guidance for 2008 to a range of $4.15 - $4.30 per share from $4.00 - $4.40 per share. That's measured on non-GAAP operating earnings; on GAAP earnings, the company adjusted its guidance from $3.70-$4.10/share to $3.90-$4.30/share. The press release cited mark-to-market adjustments in hedging, asset impairments, and costs associated with rate and litigation settlements. Analysts had been predicting GAAP earnings of $4.36/share. The company also announced a share buyback program that will total $1.5 billion over the next six months.  This might just be only the tip of the iceberg in nuclear power during an election year.

Exelon is joining nine other companies that have filed applications with the NRC to build 29 new reactors in the US. NRG Energy (NYSE:NRG), Dominion (NYSE:D), Duke Energy (NYSE:DUK), Progress Energy (NYSE:PGN), and Ameren Energy (NYSE:AEE) among others have also filed construction and operating license applications with the NRC.

Coal Stocks Above 2007, But Valuation Risks Remain (ACI, BTU, CNX, FCL, MEE, KOL)

In the past 52-weeks, the stock price of five large coal companies has risen anywhere from 50% to nearly 250%. But that's still between 27% and 42% below annual highs that the companies reached in June. Peabody Energy (NYSE:BTU) has fallen 27% from its 52-week high, Arch Coal (NYSE:ACI) and Massey Energy (NYSE:MEE) have both dropped 32%, Foundation Coal (NYSE:FCL) has dropped 34%, and CONSOL Energy has lost 42%. In late June, Massey was up nearly 400% and CONSOL was up more than 200%.  These numbers may be slightly different based upon UBS's upgrade to coal stocks this morning, but you will see the general idea below.

International Utilities ETF Launch From State Street (STT, IPU)

State Street Corporation (NYSE: STT) announced that its State Street Global Advisors unit is launching 10 new SPDR exchange-traded funds, which are supposed to begin trading on the American Stock Exchange today.

SPDR(R) S&P(R) International Utilities Sector ETF (AMEX: IPU)      

• This index includes more than 130 non-US utility companies with market caps of at least $100 million.

These ETF's are benchmarked to a series of the S&P(R) World ex-U.S. Broad Market Indices, which are market cap weighted with only non-US holdings.  The expense ratio on each of these ten ETF's is listed as 0.50%.

Jon C. Ogg
July 22, 2008

OGE Energy Files For Debt Sale (OGE)

OGE Energy Corp. (NYSE: OGE) has filed with the SEC for its Oklahoma Gas and Electric unit to sell up to $700 million in senior notes.

The filing says the company may offer from time to time in one or more issuances one or more series of unsecured senior notes.  The aggregate initial offering price of the senior notes that are offered will not exceed $700,000,000 and these will be offered in an amount and on terms to be determined by market conditions at the time of the offering.

OGE Energy closed yesterday at $34.02 and its 52-week trading range is $29.12 to $38.30.  Its market cap is $3.13 Billion.

You can join our open email distribution list to hear about other secondary offerings, mergers, special financings, IPO's, restructurings, and other special situations.

Jon C. Ogg
June 6, 2008

SPAC One Step Closer to First Acquisition (GGA, GS)

GCA Acquisition (AMEX:GGA) has received anti-trust clearance related to its proposed $1.3 billion purchase of merchant power generator Complete Energy. Complete Energy owns two natural-gas-fired combined-cycle power plants:

• the 1,022-megawatt La Paloma plant near Bakersfield, California,
• and the 837-megawatt Batesville, Mississippi plant.

All of Batesville's capacity is committed under long-term contracts with J Aron & Company, a subsidiary of Goldman Sachs (NYSE:GS) and a Mississippi utility company. The Bakersfield plant has two tolling agreements for about half its capacity, with the remaining capacity sold on the California merchant power market.

Following completion of the merger, investment funds managed by The TCW Group will own about 19% of Complete Energy; existing GCA shareholders will own about 42%; and the current owners of Complete Energy will own 10%. This is a very good deal for every stakeholder, promising dependable, if not massive, returns, increased access to financing for Complete Energy, and experienced management to run the show.

It appears that shareholder approval is still an outstanding issue, although with this being energy it seems that the approval would be more likely than some other SPAC conversions.

Paul Ausick
June 4, 2008

NRG & Calpine: Insanity or Opportunistic? (NRG, CPN)

After last night's disclosure and confirmation that NRG Energy, Inc. (NYSE: NRG) had sent a buyout offering letter to Calpine Corporation (NYSE: CPN), we wanted to let the dust settle here before calling this insane or genius. 

NRG sent a $23.00 buyout offer to Calpine back on May 14, which was a 16% premium to the day's prior close and roughly 20% higher than the daily average.

NRG stated in its letter that this "creates a combined company the likes of which this industry has never seen: a fully capable, multi-fuel, across-the-merit order company with four highly coherent regional businesses, of at least 8 GW each, spanning all of the major competitive power generation markets in the United States. As such, we are contemplating a transaction that is transformative to our respective companies, transformative to the industry and transformative to our respective shareholders from the point of view of present and future value creation."

So this merger for the 500 million shares of Calpine outstanding after its bankruptcy would be an all-stock offer for 0.534 shares of NRG per Calpine share.  After looking at its ten points, here are some of the expectations that NRG sees from the combined operations:

• A 45,000MW producer, with a $38 Billion enterprise value and a $20 Billion market cap.
• A diversified power source producer with regional diversification.
• Stock liquidity as a must-own company for investors in the sector.
• Tax optimization.
• Savings in general and administrative costs of $100 million annually, with additional savings as well.
• Stronger financial and credit enhanced operations.
• A growth platform not dependent upon chapter 11; and advocacy in carbon and other areas.

Right before the close today, NRG shares were off almost 5% at 40.45 and Calpine shares were up 6.4% at $22.65.  NRG shares are still close to 52-week highs and this is the highest that Calpine has been in post-bankruptcy stock trading.

If NRG can pull this off in an all-stock transaction without having to sacrifice its cash, this will ultimately end up being a major victory.  Because of Calpine's recent years, it isn't as though the company can claim it is insulted by the offer nor that this wouldn't help stabilize a post-bankruptcy situation.

Jon C. Ogg
May 22, 2008

Secondary Offering Weighs on Itron (ITRI)

Itron Inc. (NASDAQ:ITRI) announced after yesterday's close that it will sell 3.4 million shares of common stock in an at the market public secondary offering.

Yesterday's closing price was $94.47 per share, so gross proceeds will be in the vicinity of $321 million.  Itron said it plans to use $250 million of the proceeds to repay a portion of  outstanding non-convertible debt and the rest will be used for general corporate purposes.

While this will effectively be a spot secondary in result, this is under an existing shelf filing.  The funds are expected to close on or about May 12, 2008, so shares should be sold today.  Itron produces meters that read electricity, gas, water, and heat usage for utilities; and various other associated metering products for residential, commercial and industrial, and transmission and distribution customers.

Goldman, Sachs & Co. is the sole underwriter in this offering.

Itron's market cap was $2.9 Billion as of yesterday and as of December 31, 2008, the company had $1.578 Billion in long-term debt and total liabilities were carried as $2.29 Billion.

You can join our open email distribution list to hear about other secondaries, IPO's, spin-offs, and other special situation previews.

So far, shares are down a little more than 2% in pre-market trading at $92.47.

Jon C. Ogg
May 7, 2008

Higher Utility Bills Coming; Rate Relief Filed (FE, CHG, AEE, AYE, GAS)

While many utilities are reporting earnings, there is one thing that many investors will care about more than each company's results.  It seems that utilities across the board are filing with state or regional boards for rate relief to pass on higher costs to customers.

First Energy Corp. (NYSE:FE) today reported first quarter earnings of $276 million, or $0.91 EPS, compared with earnings of $290 million and $0.92 EPS for the same period in 2007. First quarter revenues totaled $3.3 billion, better than analyst estimates of $3.14 billion and $0.85 EPS. First Energy noted that high fuel costs and higher costs for purchased power reduced EPS by $0.19.

Earlier this week, CH Energy Group Inc. (NYSE:CHG) reported that revenues increased by more than 19%, but net income declined by about 4% and EPS decreased by about 4%. The company's chairman and CEO had this to say: "Higher energy supply costs are resulting in higher total bills, inducing our customers to conserve, and sales volumes are noticeably affected." In other words, people turn down the heat in an effort to save money, and it costs the utilities money.

So what do utilities do? They go to their state public utility regulators and ask for rate hikes. First Energy has sought a rate increase in  Ohio of $340 million. Central Hudson is seeking an unspecified rate increase during the summer. Ameren Corp (NYSE:AEE), which will report earnings tomorrow, is seeking rate annual increases of 12.1% ($251 million annually) in Missouri and $247 million in Illinois.

The blame for the rate hikes resides largely with rising fuel costs. Coal prices have nearly doubled in the past year, and average natural gas prices at the wellhead have increased by about 25%. The utilities have a point. But they are also seeking increases to their regulated return, usually by about 1%-2%. State regulators so far are not impressed. Last year, Ameren requested a rate hike of $361 million in Missouri, which state regulators trimmed to a recommended $43 million. Both the company and government officials in Missouri are appealing the ruling. The company because the recommended increase is insufficient; the government, because it is too high.

Allegheny Energy, Inc.'s (NYSE: AYE) Potomac Edison Co., has also filed a request with the
Virginia State Corporation Commission for recovery of the cost of purchasing power for its Virginia customers.  It is asking for the recovery of a minimum of $73 million for the 12-month period beginning July 1, 2008, which would boost customer electric bills by about 29% if certain costs can't be mitigated.

Nicor Inc. (NYSE: GAS) has also filed with the state of Illinois to pass on higher gas costs to its 2.2 million northern Illinois customers.  The rate hike request will add about $4.60 per month to the average residential electric bill, which would take effect in spring 2009.  While the company is saying this isn't due to the cost of gas because Nicor buys on wholesale and passes on to customers without any mark-up, but this is "for the cost of delivery to the homes and businesses."  Delivery, material.... six of one, half a dozen of the other.

Higher gas prices, higher coal prices, and higher raw materials and transportation costs are going to be influencing residence and business utility bills.  If you think this is bad, wait until potable water shortages become more and more prevalent.  Higher utility bills are on the way, probably across the country and beyond.

Paul Ausick
May 1, 2008

Lazard Defending Itron (ITRI)

Sanjay Shrestha, Managing Director, Senior Analyst, Alternative Energy & Industrials at Lazard Capital Markets is maintaining his "BUY" rating on Itron Inc. (NASSDAQ:ITRI) after a big drop from earnings.  The note discusses the lowered 2007 guidance reflecting lumpiness, but with a solid outlook the weakness creates excellent buying opportunity.

"Itron reported 3Q07 revenue and operating EPS of $434 million and $0.65, versus our estimates of $430 million and $0.70, and below consensus of $444.3 million and $0.77, respectively. Gross margins were 33.4% versus our expectations of 34.7%. The company also lowered its 2007 EPS guidance to $2.65-$2.75, from $2.75-$3.00 issued in August."

"The disappointing quarter and guidance mainly reflect slower than expected North American sales as utilities delay project orders while they evaluate AMI options. Also impacting the quarter and outlook were slightly higher operating costs and an increasing revenue contribution from lower-margin Actaris sales..... Book-to-bill ratio in the quarter was 1.05:1 and backlog increased to $668 million, up from $656 million sequentially. The Actaris book-to-bill ratio was slightly less than 1:1 but is expected to return to its historical 1:1 level."

Shrestha does note further risks of revenue lumpiness, customer concentration, dependence upon utilities, and regulations.  "We are lowering our FY07 and FY08 estimates to reflect the timing of AMI orders but are leaving our 2009 estimates and our $115 target unchanged. Our $115 price target reflects a 25x multiple on our 2009 EPS estimate of $4.60. This multiple is in line with its peer group. We believe that, if anything, Itron should trade at a premium to its peers given its leadership position and increasing visibility on movement of several large-scale AMI projects."

Shares of Itron have been hit hard this morning.  ITRI is trading down about 18% around $82.50 and already traded three-times average daily trading volume.  Its 52-week trading range is $46.87 to $112.92.

Jon C. Ogg
November 2, 2007

NYMEX Launching Uranium Futures: What Does It Mean For Uranium Stocks?

Stock Tickers: NMX, USU, CCJ, EMU, MOS, CF, URRE, USEG, URZ

Uranium prices, and many of the underlying stocks that either mine it or explore it or are involved in the processing are way up from prior months.  This sector will get more interesting next week and it has been given very little exposure for something of this magnitude.

The New York Mercantile Exchange (NMX-NYSE) is going to start trading a URANIUM FUTURES CONTRACT on Monday.  You can visit the site and see the summary of details on the contracts that are available.  There were some details that the exchange made public on April 16 and it is worth a read.

It is quite odd that this has not been a US market yet, because as far as most of us know the price is basically set weekly.  What is a bit odd is that the terms are not quite the same as what the industry has used and many of the indications are that the major uranium players themselves are going to sit on the sidelines for a while.  That may or may not hold true in a few months but for now it seems like the speculators and trading firms are going to be the ones involved.

Some of the underlying shares were making major moves a few weeks ago, but some have slown down or stalled during the earnings flood over the last 3 weeks.  Most of these stocks are also either micro-cap companies with loose involvement in the grand scheme of things or they are smaller companies in Canada.  There are still at least some decent sized stocks that can be reviewed in the sector:

USEC (USU-NYSE) is the pure-play that most US investors use as a bogey.

Cameco Corp. (CCJ-NYSE) is far larger as the largest producer in the world and based in Canada.  They are holding a conference call to give an update to the two floods at the Cigar Lake uranium project in Saskatchewan.

Energy Metals (EMU-NYSE) was Jim Cramer's play on the huge spike in the sector.  Cramer also came out with the two stealth plays in the sector. He also noted Mosaic (MOS-NYSE) and CF Industries (CF-NYSE) as stealth plays in the sector that can enrich uranium from phosphate, but you should know that prices have to be very high and have to be expected to remain very high for those to be cost effective. Here is what he said on these.

We had noted a safety net at the end of 2006 that uranium and nuclear energy investors could look at after Merrill Lynch made some incredibly strong calls for 2007 to 2008.

There were also many of these that were up huge in early April, and here is what was indicated at the time.

Uranium Resources (URRE-NASDAQ) $9.44; April 12 $9.68, DEC 11 $5.96.

U.S. Energy Corp. (USEG-NASDAQ) $6.54; April 12 $5.77; DEC 11 $5.58.

Uranerz Energy Corp (URZ-AMEX) $7.03; April 12 $6.38, DEC 11 $3.83.

There is even a note in the National Post in Canada showing that Raymond James has made some Canadian picks that could be buyouts in the sector.

It is hard to imagine that the contracts will gain a major foothold until the major producers and explorers to come into the actual exchange and participate in the liquidity.  These contracts may offer them some added hedging and liquidity, but it sounds like they are going to wait and see how this goes before they change the time old traditions of current uranium trading. 

Jon C. Ogg
May 4, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in any of the companies he covers.

IPO Pricing: Comverge, Inc. (COMV)

Comverge, Inc. (COMV-NASDAQ priced its IPO of 5.3 million shares at $18.00 per share.  The company used Citigroup as the lead underwriter; and co-managers include Cowen & Co., RBC Capital, and Pacific Growth.

Comverge has all the earmarks that the current investment and social climate like to hear: it is a provider of clean energy solutions that enhance grid reliability and enable utilities to increase available electric capacity during periods of peak energy demand on a more cost-effective basis than conventional alternatives.

Due to its segment, this was a premium pricing.  The original range was $15.00 to $17.00 for only 4.7 million shares.  This represents a 33% stake in the company if the 795,000 share overallotment is exercised, so there is an implied market capitalization rate of roughly $329 million based on the IPO pricing before factoring in any premium opening price.

Jon C. Ogg
April 13, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

TXU Competitor Line-Up: Before & After (2)

Stock Tickers: TXU, DUK, FPL, ETR, FE, AEP, EIX, AES, PPL, CEG, PGN, XEL, DTE, NRG.

We ran a list of other power generation competitors to TXU (TXU) and this new list has been expanded to show more data (from FEB 23).   We did not differentiate between coal-fired power plants and nuclear-powered plants because of the fact that TXU has both and these are easy to split as is expected in the KKR-led deal.  Even outside of TXU, the power generation sector is doing much better than the market since the TXU announced merger.  So investors are either being defensive in this market OR they are still thinking more merger deals are coming.

Besides the Blackstone, Texas Pacific, Carlyle, KKR, & others, Warren Buffett and Berkshire Hathaway are still deemed as potential bidders among many other firms for other power generation assets.  The KKR-Texas Pacific deal valued the shares at $69.25, but the close Friday was $62.75; shares sit today before the close up 2.8% at $64.56.  Shares closed on Friday, FEB 23 at $59.63 (adjusted for dividend); so shares are up over 7% since then (the S&P is actually Down 3.5% in the same timeframe).  If the KKR & Texas Pacific Capital were bounced out of the deal, it is feasible they would look elsewhere.  Warren Buffett may still be thinking about where he can invest into the sector too.  We gave the following 13 comparables back then, and here is how the list compared:

Stock (Close on FEB 23); Price Now (adjusted for dividends); market capitalization; P/E

Duke Energy (DUK) $19.91; $19.69 (-$0.22); $24.6B mkt Cap; 12.4 P/E.
FPL Group (FPL) $59.23; $59.80 (+$0.57); $24.6B mkt cap; 18.4 P/E.
Entergy (ETR) $100.95; $100.65 (-$0.30) $19.8B mkt cap; 18.6 P/E.
Firstenergy (FE) $63.51; $63.53 (+$0.02); $20.1B mkt cap; 16.6 P/E.
Amer Elec Pwr (AEP) $45.75; $46.40 (+$0.65); $18.2B mkt cap; 18.2 P/E.
Edison Int'l (EIX) $46.97; $48.97 (+$2.00); $15.8B mkt cap; 13.5 P/E.
AES Corp (AES) $22.28; $21.01 (-$1.27); $13.6B mkt cap; P/E n/r.
PPL Corp. (PPL) $37.26; $38.55 (+1.29); $14.5B mkt cap; 16.8 P/E.
Constellation (CEG) $75.66; $83.75 (+$8.09); $15.1B mkt cap; 16.2 P/E.
Progress Energy (PGN) $50.09; $49.90 (-$0.19); $12.7B mkt cap; 21.6 P/E.
Xcel Energy (XEL) $24.18; $23.69 (-$0.49); $9.6B mkt cap; 17,3 P/E.
DTE Energy (DTE) $47.20; $46.82 (-$0.38); $8.2B mkt cap; 19 P/E.
NRG Energy (NRG) $63.52; $70.67 (+$7.15); $8.5B mkt cap; 17.1 P/E.

So as you can tell many of these are up and the ones that are down are not trading down anywhere close to the 3.5% drop in the S&P (except AES).  A merger speculator would say the sector is still in play here because of the price action compared to the markets.  Also we listed the P/E ratios here, but keep in mind that many of these are different and aren't apples to apples. 

Jon C. Ogg
March 19, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

TXU Competitor Line-Up: Before & After

Stock Tickers: TXU, DUK, FPL, ETR, FE, AEP, EIX, AES, PPL, CEG, PGN, XEL, DTE, NRG.

On the Friday of February 23 that CNBC's David Faber broke the TXU (TXU-NYSE) merger in the largest private equity to date, we simultaneously gave a big list of competitors with high market caps in the power generation business.  We did not really differentiate between coal-fired power plants and nuclear-powered plants because of the fact that TXU has both.  Those may be split up and the KKR-Texas Pacific deal was going to alter the future of coal powered plants and encourage more investing in renewables, so really the potential buyout spectrum could be among any of these.  What is most interesting is that besides TXU, the sector is doing much better than the market during the time the drop came in the came in the overall markets.  So investors are either being defensive OR they are still thinking more deals are coming. Cramer noted more deals were likely at the time.

Besides the Blackstone, Texas Pacific, Carlyle, KKR, and others, Warren Buffett and Berkshire Hathaway are still deemed as potential bidders among many other firms for other power generation assets.  The KKR-Texas Pacific deal valued the shares at $69.25, but the close Friday was $62.75; shares sit today before the close up 2.8% at $64.56.  Shares closed on Friday, FEB 23 at $59.63 (adjusted for dividend); so shares are up over 7% since then (the S&P is actually Down 3.5% in the same timeframe).  If the KKR & Texas Pacific Capital were bounced out of the deal, it is feasible they would look elsewhere.  Warren Buffett may still be thinking about where he can invest into the sector too.  This number is lower now because of corporate spin-off activities and the like, but we already gave a $29.00 perceived break-up value on Duke back on February 9, 2007.  We gave the following 13 comparables back then, and here is how the list compared:

Stock (Close on FEB 23); Price Now (adjusted for dividends)

Duke Energy (DUK) $19.91; $19.69 (-$0.22).
FPL Group (FPL) $59.23; $59.80 (+$0.57).
Entergy (ETR) $100.95; $100.65 (-$0.30).
Firstenergy (FE) $63.51; $63.53 (+$0.02).
American Electric Power (AEP) $45.75; $46.40 (+$0.65).
Edison Int'l (EIX) $46.97; $48.97 (+$2.00).
AES Corp (AES) $22.28; $21.01 (-$1.27).
PPL Corp. (PPL) $37.26; $38.55 (+1.29).
Constellation (CEG) $75.66; $83.75 (+$8.09).
Progress Energy (PGN) $50.09; $49.90 (-$0.19).
Xcel Energy (XEL) $24.18; $23.69 (-$0.49).
DTE Energy (DTE) $47.20; $46.82 (-$0.38).
NRG Energy (NRG) $63.52; $70.67 (+$7.15).

So as you can tell many of these are up and the ones that are down are not trading down anywhere close to the 3.5% drop in the S&P (except AES).  A merger speculator would say the sector is still in play here because of the price action compared to the markets.

Jon C. Ogg
March 19, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

PCG: PG&E Gets Credit

By William Trent, CFA of Stock Market Beat

Large Cap Watch List member PG&E CORP (PCG) filed a Form: 8-K detailing changes to its credit facilities:

The Restated Utility Credit Agreement increases the aggregate amount available under this agreement by $650 million to a total of $2.0 billion. Subject to obtaining commitments from existing or new lenders and satisfying other conditions specified in the Restated Utility Credit Agreement, the Utility may increase the aggregate commitments under this credit agreement to $3.0 billion. The Restated Utility Credit Agreement has an initial term of five years and, unless extended, all amounts will be due and payable on February 26, 2012. At the Utility’s request and at the sole discretion of each lender, the Restated Utility Credit Agreement may be extended for additional periods.Under the Restated Utility Credit Agreement, the Utility will pay reduced fees and interest rate spreads.

The new agreement is unlikely to have a huge impact on the company’s earnings, as there were no outstanding borrowings under the old facility. But it does give them extra access to capital and at lower cost for any instances that they might need it, and that is always a good thing.

http://stockmarketbeat.com/blog1/

Cramer Expects More Utilities to Merge

Cramer on today's WALL STREET CONFIDENTIAL video on TheStreet.com has said that this TXU (TXU) buyout is going to run-up the other power companies.  It was $5.00 4-years ago and it would have been smarter to buy this then, according to Cramer (gee, really?).  While it is larger than the RJR Nabisco deal in the past, these deals just aren't really that big now.  Cramer thinks this won't actually make a lot of money on the deal.  TXU will never equal the growth that other companies can show, but it will grow.  The utilities can see the same flood of merger speculation like we saw in REITS over the last 4-months or more.  Cramer said the Texas market is more pro-company than say California or New Jersey and this could be the consolidator and there has been enough time between now and Enron that will let it get done.  Cramer did not give a list of secondary and teriary names today, but we have one of our own.

As a reminder we gave ouw own full list of these larger power utilities on our post regarding the merger calling for the same.  Here is that full article, but a summary of the list is here:

Duke Energy (DUK) $30 Billion market cap; 12.7 P/E;
FPL Group (FPL) $24.9 Billion market cap; 18.4 P/E;
Entergy (ETR) $20 Billion market cap; 18.8 P/E;
Firstenergy (FE) $20 Billion market cap; 16.5 P/E;
American Electric Power (AEP) $18 Billion market cap; 26 P/E;
Edison Int'l (EIX) $15 Billion market cap; 13.3 P/E;
AES Corp (AES) $14.9 Billion market cap; 40 P/E;
PPL Corp. (PPL) $14.1 Billion market cap; 16.7 P/E;
Constellation (CEG) $13.7 Billion market cap; 14.7 P/E;
Progress Energy (PGN) $12.9 Billion market cap; 22 P/E;
Xcel Energy (XEL) $9.9 Billion market cap; 18 P/E;
DTE Energy (DTE) $8.5 Billion market cap; 12.7 P/E;
NRG Energy (NRG) $7.9 Billion market cap; 12 P/E.

Jon C. Ogg
February 26, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers. 

TXU Confirms KKR-led Buyout

TXU Corp. (TXU-NYSE) has confirmed the approval of a merger reported late Friday with Kohlberg Kravis Roberts & Co. (‘KKR’) and Texas Pacific Group. Goldman Sachs is also participating in the buyout, and that was not covered in the original reports Friday.  This transaction will value the TXU leveraged buyout at in a transaction valued at $45 billion based upon the assumption of debt. GS Capital Partners, Lehman Brothers, Citigroup and Morgan Stanley intend to be equity investors at closing. Under the terms of the merger agreement, shareholders will be offered $69.25 per share at closing, and that is said to represent a 25 percent premium to the average closing share price over the 20 days ending February 22, 2007.

The new combined company is promising initial price cuts to consumers of 10% through September 2008 to secure approval from regulators.  It will also reduce the coal-powered plants from 11 to 3, and will expand renewable energy plans.  The company will also reorganize into 3 units: generation; transmission and distribution; and retail.  That sure sounds like it will be packaged in a way that will allow one or more of these to be sold off or repackaged as a future IPO.

TXU will reduce its own carbon emissions by increasing efficiency of its generating facilities by up to 2 percent and will drop plans for new coal-powered plants.  TXU’s board of directors has approved the merger agreement and has recommended that TXU's shareholders adopt the agreement.  TXU may solicit proposals from third parties through April 16, 2007; which is why the stock is trading up at $70.00 and higher in initial trading this morning pre-market.

If you wish to get more details on the deal and to hear about any anticipated complications, there will be a conference call this morning at 9:00 AM EST.  The dial-in number is (800) 309-0343 in the U.S. and Canada and (706) 902-0117 internationally, conference ID 1228130. The call will be webcast at www.txucorp.com. Needless to say, this call will be heavily attended.

Here is a link to what we said on Friday with many other power company names that are trading higher because of the potentiality of more mergers in the sector.

Jon C. Ogg
February 26, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers. 

TXU To Be Acquired by KKR in Largest Deal of Its Type (TXU, BRK/A)

CNBC's merger star watch dog and scoop artist David Faber just announced that TXU Corp. (TXU) will be acquired by KKR over the weekend.  TXU is the Texas power plant that controls much of the power in the state.  The market cap of TXU is $27.5 Billion and $12.3 Billion in debt, so in a cash deal any premium would top the latest buyout of Equity Office and should be the largest LBO ever.  Any premium will make this roughly the largest private equity buyout ever.

So where is Warren Buffett and his power plant acquisitions that he had been discussing for Berkshire Hathaway (BRK/A)?  He even said the likes of "one $10 Billion deal is easier to do than ten $1 Billion deal...".  TXU shares are up 13% at $68.00 in after-hours; the 52-week high is $67.21.  Before the deal was announced TXU traded with a 14.6 P/E ratio and had a 3.1% dividend yield.

Other utilities to focus on after this are the following (partial list):
Duke Energy (DUK) $30 Billion market cap;
FPL Group (FPL) $24.9 Billion;
Entergy (ETR) $20 Billion market cap;
Firstenergy (FE) $20 Billion market cap;
American Electric Power (AEP) $18 Billion market cap;
Edison Int'l (EIX) $15 Billion market cap;
AES Corp (AES) $14.9 Billion market cap;
PPL Corp. (PPL) $14.1 Billion market cap;
Constellation (CEG) $13.7 Billion market cap;
Progress Energy (PGN) $12.9 Billion market cap;
Xcel Energy (XEL) $9.9 Billion market cap;
DTE Energy (DTE) $8.5 Billion market cap;
NRG Energy (NRG) $7.9 Billion market cap.

We already offered a break-up value of Duke (DUK) and here is what we came up with: $29.00 as of FEB 09, 2007.  Have a great weekend, and enjoy comparing the power utility valuations over the weekend.

Jon C. Ogg
February 23, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Wall Street Likely to Yawn Despite Another Blowout Quarter for Chesapeake Energy

By Chad Brand of Peridot Capitalist

The hardest thing for value investors oftentimes is to stand by one's convictions, even when Wall Street doesn't seem to take notice of what you see. Shares of natural gas producer Chesapeake Energy (CHK) have been doing nothing for more than a year. Many investors have likely grown tired from Wall Street's yawns and have moved on to more hip names. However, CHK's fourth quarter earnings report issued yesterday afternoon once again shows that the company is clicking on all cylinders.

Chesapeake reported earnings of $0.90, 13 cents above estimates of $0.77 per share. Revenue came in at $1.87 billion, versus the consensus view of $1.52 billion. Spectacular quarters are nothing new for CHK, as they have reported stellar results for many quarters in a row now. However, the stock has merely been tracking the commodity price of natural gas, ignoring the fact that shares trade at 8 times trailing earnings and 5 times trailing EBITDA.

The weakness in Chesapeake shares, relative to its operating results, is likely due to two things. First, CHK has issued a lot of convertible debt to fund increased natural gas production, and continues to do so. In order to hedge their positions, buyers of the convertible debt simultaneously short the common stock in order to lock in the income generated from the convertible securities. The good news is that the land grab that CHK has embarked on is largely over so they are doing fewer acquisitions. In fact, CHK's long term debt actually fell in Q4 for the first time in a long, long time.

PCG: PG&E Earnings Not Just Stable - They’re Growing

By William Trent, CFA of Stock Market Beat

Most advisors recommend some exposure to utilities for the dividend and earnings stability they tend to offer in a portfolio. However, the earnings report from Large Cap Watch List member PG&E CORP (PCG) shows they have potential for earnings surprises and capital gains as well.

§ Year-end net income was $991 million, compared with $917 million in 2005.§ Earnings from operations for 2006 were $2.57 per share, compared with $2.34 for 2005.

§ The company is increasing guidance for 2007 earnings from operations by $0.05 per share to a range of $2.70-$2.80 per share.

Consensus estimates were for $2.54 in 2006 and $2.72 in 2007. The year-over-year increase in earnings per share predominantly reflects the positive effects of share repurchases in 2005, which resulted in fewer shares outstanding in 2006. The shares are up half a percent in a flat market on the news, in addition to offering the aforementioned dividend yield of nearly 3%.

The author may hold a position in the securities discussed. The author's current holdings are as follows: Long: Union Pacific (UNP) put options; Air Products (APD) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Three Five Systems (TFS); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Landstar (LSTR) put options; Plantronics (PLT) put options

http://stockmarketbeat.com/blog1/

Cramer Talks Boring Retirement Yield Stocks

Consolidated Edison (ED) or Southern Co. (SO) are examples of these.  The 4.7% income on the treasury looks good, but you pay more tax on treasury income that is only abopuit 3.1% net after taxes.  ED has a 17 P/E and it now has a 4.9% dividend afterthey hiked dividend.  The after-tax yield on this is 4.1% plus you get the chance to see another dividend hike and you get upside if stocks go up.  Utilities trade up as rates come down because of longer-term leverage to rates.  SO stock has roughly a 4.3% yield and also trades at just over 17 times earnings.

Jon C. Ogg
January 19, 2007