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Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: "SCIENTECH IssueAlert" <IssueAlert@scientech.com< X-To: X-cc: X-bcc: X-Folder: \Mark_Haedicke_Jun2001\Notes Folders\Notes inbox X-Origin: Haedicke-M X-FileName: mhaedic.nsf Today's IssueAlert Sponsors:=20 [IMAGE] The IBM e-Energy Executive Forum =01) "Personalization, Partnership, and=20 Profitability" Designed for executives in the utility industry looking to leverage Custome= r=20 Relationship Management in the competitive marketplace. Topics will focus o= n=20 how process and technology can be leveraged to gain competitive advantage.= =20 Featured speakers will include IT analysts, solution partners, IBM=20 executives, and customers including: John Goodman, President of e-Satisfy;= =20 Richard Grimes, Director of CRM Energy Services; David Bonnett, Global=20 e-Energy Sales Executive, Siebel Systems.=20 www.ibm.com [IMAGE] Rapidpartsmart is the newest, most powerful online parts search engine in = =20 the power industry. Rapidpartsmart is the complete source to locate, buy a= nd=20 sell engineered parts worldwide. Rapidpartsmart integrates over 5 million= =20 supply items into asset management and work management systems to ensure= =20 that you know all supply sources, all the time. Rapidpartsmart increases= =20 supply options, reduces outage risks and cuts inventory investment. Contac= t=20 John Kelly at (727) 669-3006 for more information or go to=20 www.rapidpartsmart.com [IMAGE] The most comprehensive, up-to-date map of the North American Power System b= y=20 RDI/FT Energy is now available from SCIENTECH. =20 [IMAGE] IssueAlert for March 23, 2001=20 Enron Stock Drops Amid Concerns About Broadband Business,=20 General Market Trends by Will McNamara=20 Director, Electric Industry Analysis [News item from Reuters] Shares of electricity and natural-gas marketing=20 giant Enron Corp. (NYSE: ENE) slid further on Thursday (March 22) amid=20 broader weakness in energy stocks, despite a reassurance from the company= =20 that it would hit its previously stated target earnings for this year. Enro= n=20 was off $3.34, or 6 percent, at $52.55 on March 22, after falling 8 percent= =20 on March 21. So far this year, Enron's stock is down about 37 percent, vers= us=20 a 16-percent decline for Standard & Poor's utilities index and a 20-percent= =20 drop for the Dow Jones industrial average.=20 Analysis: Over the last several weeks, a growing number of smaller, emergin= g=20 energy companies have felt the impact from the nation's struggling economy= =20 and the likelihood of an impending recession. Just recently, start-up=20 companies such as Silicon Energy and Hydrogen Burner Technology have=20 withdrawn their IPO plans, citing an anemic stock market and the lack of=20 positive cash flow. A look across the stock market can send shivers down th= e=20 spines of most energy company CEOs, as the Dow Jones industrial average=20 tumbled below the 9,200 point for the first time in two years, and the Nasd= aq=20 composite remains 64 percent off of its March 10, 2000, high of 5,048,=20 putting the economy in bear market territory. =20 However, while the stocks and public offerings of smaller energy companies= =20 may crash and burn, the giant energy company that is Enron Corp. typically= =20 has seemed immune from the high and low tides of the U.S. economy. Over the= =20 course of 2000, Enron shares returned 89 percent and traded at roughly 55= =20 times trailing earnings, reportedly more than 2.5 times the multiple of its= =20 some of its main competitors or the S=02?500. Nevertheless, Enron's winning= =20 streak in the stock market may be eroding, as the waves that are crashing= =20 around many other energy companies may also be dragging Enron into the same= =20 whirlpool.=20 For perspective, Enron's closest competitors across its various business=20 lines, Williams and Dynegy, also appear to be taking the hit from the bear= =20 market. Williams (NYSE: WMB) saw its stock decline $3.34, or 8 percent, to= =20 $38.10 on March 22. Dynegy (NYSE: DYN) saw its stock drop $2.26, or 5=20 percent, to $44.50. Of course, of the three companies, Enron wields the=20 highest P/E ratio at 49.99 and largest market capitalization at $41.7=20 billion. By comparison, Williams has a P/E ratio of 21.53 and market=20 capitalization of $20 billion, while Dynegy has a P/E ratio of 31.98 and=20 market capitalization of $15.2 billion.=20 Analysts that keep a close eye on Enron's stock say the sudden decline is n= ot=20 a reflection of any new business developments at the company, but rather a= =20 market that is struggling in general, and a growing disenchantment among=20 investors in technology and telecommunications in particular. This may be= =20 having a unique impact on Enron as the company attributed much of its stron= g=20 stock performance over the last year to its growing expansion into the=20 telecommunications / broadband market. Just as the company has achieved=20 unparalleled success in electricity and natural-gas trading, for the last= =20 year Enron has been developing a high-speed broadband communications networ= k=20 to support its planned move into bandwidth trading and marketing. Enron=20 projects a $450 billion worldwide market for communications bandwidth tradi= ng=20 and services by 2005, and the valuation of its own broadband business at $4= 0=20 a share, or $35 billion. The company plans to trade excess bandwidth=20 capacity, and in order to do so is constructing its own network, which cost= s=20 a lot of money. Enron has acknowledged that it intends to sell between $2= =20 billion and $4 billion in assets over the next 12 months in order to reduce= =20 debt and support the new business in broadband (among other businesses in= =20 pulp and paper, data storage and advertising).=20 Thus, much is riding on the anticipated success of the broadband business,= =20 and Enron's role in it. Up to this point, confidence in both the industry a= nd=20 the company have run high. Some analysts have reported that interest in=20 Enron's expansion into this area, validated by investor interest in new=20 technologies in general, drove an 87-percent rise in the company's share=20 price last year. Yet, once again, the tide may be turning. Investors no=20 longer seem to be as enthralled by emerging technologies that have not=20 resulted in bottom-line profits, much as the year before e-commerce stocks= =20 also found that their "day in the sun" ended rather abruptly. =20 And, although nearly every other Enron line of business has turned to gold,= =20 its broadband business has remained immature. In fact, for year-end 2000,= =20 Enron Broadband Services reported a $60 million IBIT loss, reflecting start= up=20 costs to build the new business. The company seems to have anticipated the= =20 slow growth of its broadband business. In fact, Enron CEO Jeffrey Skilling= =20 did not appear concerned over the loss and said that it took between five a= nd=20 six years for the company's natural-gas business to develop standardized=20 contracts and increase liquidity. Skilling has said that these numbers do n= ot=20 dilute his belief that bandwidth trading will soon become a strong performe= r=20 for the company. While Skilling remains optimistic about the potential of t= he=20 broadband business, investors may not be as patient. (Note that while Enron= 's=20 broadband business took a loss for 2000, the company as a whole reported a= =20 25-percent increase in earnings per diluted share to $1.47 and a 32-percent= =20 increase in net income to $1.3 billion).=20 In late January Enron had increased its earnings target for 2001 to between= =20 $1.70 and $1.75 per share. In response to the sudden drop in stock price an= d=20 speculation that its broadband business would receive new pressure to becom= e=20 profitable, Enron issued a brief statement reiterating that it "remains ver= y=20 comfortable" with the 2001 earnings estimate. An Enron spokesperson also ma= de=20 references to "information in the market that is inaccurate," suggesting th= at=20 any speculation about problems in its broadband business were unfounded,=20 including potential layoffs at the broadband unit. According to a report on= =20 CBS.MarketWatch.com, investors polled by First Call / Thompson Financial ar= e=20 still expecting Enron to turn in earnings in a range of $1.67 to $1.80 for= =20 2001.=20 Nevertheless, despite Enron's reassurances that it remains on track to meet= =20 its earnings estimate, the company's stock continued to drop. As noted,=20 investors began to put downward pressure on the stock, pushing it to $52.50= =20 (as of March 22), below its 52-week low of $55 and far below its 52-week hi= gh=20 of $90.56. =20 Some of the decline may be attributed to the fact that many investors remai= n=20 unclear about what it is that Enron does, exactly. According to a March 5= =20 article in Fortune magazine entitled "Is Enron Overpriced?", some Wall=20 Streeters are skeptical about how the company makes its money, and the lack= =20 of clarity has often raised a red flag about Enron's pricey stock. The=20 skepticism did not seem to steal any of Enron's thunder in a bull market, b= ut=20 that could all change quickly in a bear market. Enron may in fact exacerbat= e=20 Wall Street's distrust in its business model by not fully disclosing its=20 financial records for what it deems "competitive reasons." The Fortune=20 report, which was published before Enron's stock began to decline, also=20 indicated that investors are concerned about Enron's debt. Although the=20 company continues to promise a reduction in its debt load, Enron carried a= =20 net $13 billion debt at the end of September 2000. Again, although investor= s=20 may have been able to look the other way from Enron's debt during a strong= =20 economy, it appears that investors will use a fine-tooth comb to examine th= e=20 company's financial records during the increasingly unstable economy.=20 Moreover, in addition to a possible impatience with the growth of technolog= y=20 and telecommunications stocks, investors may also be concerned that a globa= l=20 economic slowdown could reduce demand for energy as a whole, resulting in= =20 lower commodity prices. Drops in the stocks of Dynegy and Williams possibly= =20 validate this theory. =20 Enron was quick to quell rumors that its stock began to fall as a result of= =20 problems with its broadband unit. Looking at the big picture, it appears=20 reasonable that the broadband business on its own has not caused the drop i= n=20 Enron's stock. Rather, Enron shares have mostly likely fallen as a result o= f=20 several factors. Yes, investors appear to now be less likely to support new= =20 technologies and telecommunications businesses that have not proven to be= =20 presently profitable. In addition, Enron is in many ways an enigma. In an= =20 unstable economy, the uncertainty surrounding Enron's business could prompt= =20 an unprecedented hesitation about the company's business model. And, lastly= ,=20 Enron is not alone among energy stocks (and stocks in general) that are=20 weathering the fallout of the stock market. On the bright side, Enron still= =20 remains a very puissant company, despite the sudden drop in its stock price= .=20 Enron's P/E ratio of 49.99 is still quite strong when compared against othe= r=20 energy companies. In addition, Enron is a company full of surprises, and it= =20 is doubtful that any temporary drop in its stock price will keep the compan= y=20 down for long.=20 An archive list of previous IssueAlerts is available at www.ConsultRCI.com Reach thousands of utility analysts and decision makers every day. Your=20 company can schedule a sponsorship of IssueAlert by contacting Nancy Spring= =20 via e-mail or calling (505)244-7613. Advertising opportunities are also=20 available on our website.=20 SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let = us=20 know if we can help you with in-depth analyses or any other SCIENTECH=20 information products. If you would like to refer a colleague to receive ou= r=20 free, daily IssueAlerts, please reply to this email and include their ful= l=20 name and email address or register directly on our site. =20 If you no longer wish to receive this daily email, send a message to=20 IssueAlert, and include the word "delete" in the subject line.=20 SCIENTECH's IssueAlerts(SM) are compiled based on the independent analysis= =20 of SCIENTECH consultants. The opinions expressed in SCIENTECH's IssueAlert= s=20 are not intended to predict financial performance of companies discussed, = or=20 to be the basis for investment decisions of any kind. SCIENTECH's sole=20 purpose in publishing its IssueAlerts is to offer an independent perspecti= ve=20 regarding the key events occurring in the energy industry, based on its=20 long-standing reputation as an expert on energy issues. =20 Copyright 2001. SCIENTECH, Inc. All rights reserved.
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