Is Enron Overpriced?
It's in a bunch of complex businesses.
Its financial statements are nearly impenetrable.
So why is Enron trading at such a huge multiple?
By Bethany McLean
March 5, 2001
NEW YORK (FORTUNE) -- In Hollywood parlance, the "It Girl" is someone who commands the spotlight at any given moment -- you know, like Jennifer Lopez or Kate Hudson. Wall Street is a far less glitzy place, but there's still such a thing as an "It Stock." Right now, that title belongs to Enron, the Houston energy giant. While tech stocks were bombing at the box office last year, fans couldn't get enough of Enron, whose shares returned 89%. By almost every measure, the company turned in a virtuoso performance: Earnings increased 25%, and revenues more than doubled, to over $100 billion. Not surprisingly, the critics are gushing. "Enron has built unique and, in our view, extraordinary franchises in several business units in very large markets," says Goldman Sachs analyst David Fleischer....MORENow Bethany is back with
Uh-oh. It's Enron all over again
(Fortune Magazine) -- Start with the headlines about off-balance-sheet entities known as structured investment vehicles, or SIVs (or sieves, as some wags are calling them). As Gertrude Stein never said, an off-balance-sheet vehicle is an off-balance-sheet vehicle is an off-balance-sheet vehicle.
Just as Enron's off-balance-sheet vehicles were propping up its stock price by camouflaging the company's real financial results, so SIVs were inflating the credit market by providing demand for the complex securities created out of mortgages and loans used to finance buyouts....
Here's a nice characterization
But no one wants to remember two simple rules -- some things are too good to be true, and be wary of Wall Streeters bearing gifts -- when everyone seems to be making so much money. And the collateral damage always hits the true innocents, such as gas pipeline workers and homeowners.
*For the record, Fortune gave Enron its "America's Most Innovative Company" Award for six straight years, 1996-2001 and and as of August 14, 2001 was tipping ENE as one of the "Ten Growth Stocks to Last the Decade". Enron filed its bankruptcy petition December 2, 2001.
economicprincipals.com has some of the history of the journalists who worked the story:
...Three books dealing with the story of Enron Corp. have now appeared; a fourth may be in the works. That is a sufficient number to permit an impressionistic boxing of the compass of news, for the books in print were written by journalists who covered the story for The New York Times, The Wall Street Journal and Fortune magazine.
And while abstracting out the three key institutional players obscures the vital role played by the other organizations that committed extensive resources to the chase -- The Washington Post and The Financial Times in particular; the Chicago Tribune (in connection with the ill-fated Chicago-based accounting firm of Arthur Andersen) and The Houston Chronicle (eventually) -- it renders visible some of key mechanisms by which news is covered and uncovered in the present day.
Enron is an especially interesting case for many reasons, not least because the press was so deeply complicit in its rise to prominence as "America's seventh-biggest company." Early in its fifteen-year history, Enron recognized that glowing press clips, as much as analysts' recommendations and business school cases, were the royal road to success.
No news organization was more embarrassed in the process than Business Week magazine, which triumphantly splashed Enron's Jeff Skilling on its cover just as the company began its dizzying descent. (It was no more than a superficial cut, since BW does an excellent job from week to week.). But almost everyone who was anyone got taken in at some point. Winners of the $50,000 "Enron Prize for Distinguished Public Service" included Nelson Mandela, Colin Powell, Mikhail Gorbachev -- and Alan Greenspan. (Surely they were happy to cash the check!)
The story as it frequently is told is that it was a Fortune magazine writer who raised the first alarm. And it is true that Bethany McLean, a former Goldman Sachs analyst-turned journalist wrote a savvy (if somewhat cautious) article in March 2001 titled "Is Enron Overpriced?"
There were other journalists who over the years cocked at skeptical eyebrow at the company -- none more so than Jonathan Weil, a reporter for the Texas regional edition of The Wall Street Journal whose prescient story about energy-trading companies' bizarre "mark-to-market" bookkeeping practices never made it into the newspaper's national edition. (Today Weil covers the accounting industry for the paper.)...MORE