Stock Spotlight : Deregulation, Expansion Propel Calpine’s Climb
Calpine Corp. is causing quite the buzz among utility stocks.
Shares of the San Jose-based operator and developer of power plants have skyrocketed during the last year in tandem with the company’s strong earnings growth and its aggressive spate of acquisitions.
Stock in Calpine, which has been around since 1984, also is being propelled by the deregulation of electricity in California and other states during the last two years--and by the attendant publicity surrounding deregulation that’s gotten investors excited about fast-growing independents such as Calpine.
The stock has more than quintupled in price in just the last 12 months, giving the company--which had 1998 revenue of $556 million--a total market value of $2.5 billion. The stock closed Wednesday at $91.50 a share, down $1.19 on the day, in New York Stock Exchange composite trading.
“Deregulation has been terrific for us,” said Peter Cartwright, Calpine’s chief executive and founder. More investors today “know about the power industry than they used to, and it’s more on their radar screens,” he said.
Indeed, Calpine isn’t the only independent power supplier that’s drawing attention. AES Corp. of Arlington, Va., has seen its stock double in price during the last year in large part because of its Los Angeles-based NewEnergy Inc. unit, which also is exploiting deregulation in various states.
But Calpine was “in front of the whole industry” with its strategy of “buying or developing new power plants” that provide stiff competition against older, more costly generation facilities, said Michael Worms, an analyst with investment firm Gerard Klauer Mattison in New York. And now “their strategy has been validated by the rest of the industry,” he said.
Altogether, Calpine now has 56 plants in 14 states that it’s operating, developing or planning to acquire.
The company is an energy wholesaler, meaning it sells to large industrial users, power resellers and even the conventional utilities with which it competes. But just as deregulation is giving individual consumers more choices for power, so it also is allowing those institutional customers to shop more freely for supplies from the likes of Calpine.
“It creates opportunities for other companies to come to us and buy power,” Cartwright said. That’s especially true for the conventional utilities, many of which have abandoned power generation and are now focused only on distributing the power to customers.
But it’s not just deregulation that’s driving Calpine, which specializes in plants using natural-gas and geothermal power. The company’s financial results have bested Wall Street expectations for several quarters now. In addition, Calpine has seven power plants now under construction; a year ago it had none. And in July, the company announced that it had obtained a $1-billion credit line for its construction projects.
For the first half of this year, Calpine’s earnings (before a one-time charge) more than doubled those of a year earlier, to $22.6 million, and revenue for the six months surged 71% to $337 million.
Moreover, Calpine has been buying power plants at a rapid clip. One of its biggest deals was completed in May, when it bought 14 geothermal plants in Northern California from Pacific Gas & Electric Co. for $213 million--a purchase that Calpine said makes it the nation’s largest geothermal power producer.
Last month, Calpine agreed to buy Sheridan Energy Inc., an energy exploration-and-production concern, for $41 million, and it agreed to acquire an 80% stake in Cogeneration Corp. of America--which has interests in six natural-gas plants in the East and Midwest--for $145 million.
It’s the kind of breakneck pace that’s tripped many other companies, but Cartwright said that Calpine will manage. Besides having the necessary financing, “we have extremely stable senior management . . . and we’ve staffed up by adding management at all levels to handle” the expansion, he said.
Cartwright started Calpine after spending 19 years working for General Electric Co.’s nuclear energy division, and five years as a general manager at Gibbs & Hill Inc., a power-project engineering firm.
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Power Play
Shares of independent power producer Calpine Corp. have soared amid investors’ expectations that the company will prosper from electricity deregulation in California and other states. Monthly closes and latest:
Wednesday: $91.50
Source: Bridge Information Systems
