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Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Gualy, Jaime </O=ENRON/OU=NA/CN=RECIPIENTS/CN=JGUALY< X-To: Rogers, Benjamin </O=ENRON/OU=NA/CN=RECIPIENTS/CN=Brogers< X-cc: X-bcc: X-Folder: \BROGERS (Non-Privileged)\Rogers, Benjamin\Inbox X-Origin: ROGERS-B X-FileName: BROGERS (Non-Privileged).pst -----Original Message----- From: Courtney Cleman <Courtney.Cleman@morganstanley.com<@ENRON Sent: Friday, September 28, 2001 7:15 AM To: kkonolig@ms.com Subject: EPS Visibility Has Blurred, but Not Much has Changed/Kit Konolige/MS Eletric Utilities Research Morgan Stanley Electric Utilities Research Kit Konolige (212) 761-6237 David Reynolds (212) 761-6078 Carrie Stevens (212) 761-6183 Chris Bezler (212) 761-4487 EPS Visibility Has Blurred, but Not Much has Changed * 3 negative pre-announcements in 2 days blurs EPS visibility We are examining where the weakness has stemmed from - (1) smaller, regionally-focused businesses (EXC) and (2) aggressive power price forecasts (AES & RRI). * Some companies have reaffirmed '01 and even '02 EPS guidance DUK, ETR, ILA, MIR, NRG, PPL & SRE have reaffirmed 2001 EPS guidance. ETR and MIR have also reaffirmed 2002 EPS guidance. Informally reaffirmed - CPN, D, MIR, PEG & TXU. * Trading, CA generation and peaking plant income appear most volatile Inside we try to identify stocks with exposure to these businesses and quantify what percentage of our estimates they represent. * Believe EPS downside risk should be limited to 15% Both CEG and RRI missed estimates by roughly this amount. RRI also reduced its growth rate to 15% - we have always assumed long-term growth rates would come down to 15-20%. * Reduced EPS expectations are already priced into stocks Group multiple is roughly 9X, with some stocks at 7X P/E multiples - implying 0.4-0.6X PEG ratios. This valuation appears too heavily discounted for 15% EPS downside risk. - 112414.pdf - Courtney.Cleman.vcf
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