A BUDDING BULL MARKET IN electric power could give Dynegy a welcome jolt. The Houston-based independent power producer, which narrowly escaped bankruptcy in 2001, doubled its size last year with an acquisition and now boasts 29 power plants in 15 states that generate almost 2,000 megawatts of power. Dynegy's shares, currently at $7 apiece, also look poised to just about double, as the company's cash flow and asset value increase.
"Power demand is catching up with supply," says Vance Brown, a principal at money manager Grisanti, Brown & Partners. "Existing power plants are going to be increasingly valuable."
Brown estimates that the replacement value of Dynegy's plants could be $15 to $18 a share. The company values those assets at $17 to $24 a share. The shares easily could trade up to 80% of replacement value, which would put the stock at least at $12 if the electricity market tightens, as expected.
Granted, $12 is a long way from $59, where Dynegy (ticker: DYN) peaked in September '01. But doubling its share price would be a remarkable turnaround for a company that nearly crashed and burned, like rivals Enron and Calpine, in the aftermath of the 2000 energy bubble. Dynegy made its share of ill-fated investments in the late 1990s -- in overseas assets, telecommunications and electricity trading -- and the company's failed bid for Enron in 2001 was followed by charges that Dynegy had manipulated the California energy markets and boosted earnings through improper accounting. Exacerbating its problems, excess capacity in the industry pushed prices down for the first time in decades....MORE
