Enron Stock Hits 52-Week Low on Skilling’s Exit
Enron Corp. stock plunged to a 52-week low Wednesday as Wall Street reacted to Tuesday’s surprise resignation of Jeffrey K. Skilling, chief executive of the energy-trading giant and one of the main architects of its bold business strategy.
That strategy--shedding physical assets to become a high-tech middleman for goods as diverse as crude oil and fiber-optic broadband--has increasingly come into question as Enron’s stock value has been sliced in half since Skilling took over the helm in February.
Still, several analysts kept the faith Wednesday. Goldman, Sachs & Co., Banc of America Securities and Bear Stearns all reaffirmed their positive ratings on Enron stock.
Even an analyst who downgraded the shares said he was doing so more because of the uncertainty surrounding Skilling’s exit than doubts about Enron’s business direction.
Skilling, 47, called his reasons for resigning “purely personal” and family related. He will continue as a part-time consultant while his mentor and predecessor, Enron Chairman Kenneth L. Lay, takes back the CEO post he had held for 15 years.
After touching a 52-week low of $36.87 on the New York Stock Exchange early in Wednesday’s session, Enron shares recovered to close at $40.25, down $2.68. Trading volume was huge, with more than 29 million shares changing hands--eight times the daily average for Enron.
Donato J. Eassey, a Merrill Lynch analyst based in Enron’s home town of Houston, cut his short-term outlook on the stock from to “neutral” from “buy” and dropped his long-term rating to “accumulate” from “buy.”
Enron tends to trade at more than 20 times per-share earnings, Eassey noted, while its competitors have price-to-earnings ratios of around 16. Enron’s P/E premium could melt away “as this new uncertainty brings into question its sustainable growth outlook,” Eassey said in a report issued Wednesday.
The analyst stuck by his earnings estimates for Enron, however, noting that its core energy-wholesaling business is healthy. “It is the noise surrounding its other investments that will once again test Mr. Lay’s ability to right the ship,” he said.
Part of the “noise” Eassey referred to is being made in California, where officials have accused Enron of profiteering during the state’s electricity crisis by manipulating energy prices.
Skilling, in an interview last month with the Associated Press, rejected the accusation in typically combative fashion.
“If we were involved in creating the kind of price volatility that occurred in California, then we are the stupidest people in the world,” Skilling said. “It has hammered our stock price and it has probably in some ways created a resistance to additional liberation of markets, which is what we built our entire business on.”
Indeed, if Enron’s aggressiveness in California contributed to a climate of caution toward electric-utility deregulation in other states, it could be a major blow to the company’s business plan, analysts said.
