Dynegy Reports; Is It Good Enough?

Dynegy Inc. (DYN-NYSE) reported EPS of $0.03 on stronger-than-expected weather-driven demand and higher power prices; up from -$0.01 last year and compares to $0.03 to $0.04 estimates (Reuters $0.03e and First Call $0.04e).  Revenues were $573M vs. $600M last year (no estimates seen for this quarter).

Earnings before interest, taxes and depreciation and amortization (EBITDA) from the power generation business was $190 million for the first quarter 2007, compared to EBITDA of $167 million for the first quarter 2006.

Dynegy’s liquidity was $863 million. This consisted of $369 million in cash on hand and $494 million in unused availability under the company’s letter of credit facility.

CONJECTURE: Before looking further at this situation, the stock is within 2% of its $10.53 highs which is also back to 5-year highs.  This stock is also up more than 100% from the lows in 2006.  These results may be good compared to last year but are fairly in-line and on lower revenues year over year.  It would make one wonder if this one needs a breather before making any massive moves.  The hardest bet on Dynegy is that the stock often reacts differently than the news.  Last months short interest was 7.946 million shares, down from more than 10.3 million shares in March.

GUIDANCE: The new 2007 estimates include a range of operating cash flow between $485 million and $585 million and a range of free cash flow between $135 million and $235 million. Previously, the range of 2007 operating cash flow was between $500 million and $600 million and the range of free cash flow was between $315 million and $415 million. The $180 million reduction primarily related to a legal and settlement charge of approximately $20 million and the refinancing of certain project debt. The company’s new 2007 EBITDA estimates include an anticipated range of $1.01 billion to $1.12 billion compared to the previous estimated range of $1.02 billion to $1.13 billion. The new estimates reflect purchase accounting adjustments, which have no corresponding impact to cash flow, and a legal and settlement charge of approximately $20 million.

INITIATIVES: As a result of the combination with LS Power, the company’s portfolio now includes 30 power generation facilities totaling approximately 20,000 megawatts of baseload, intermediate and peaking capacity in key regions of the U.S. The company previously announced an initiative to rationalize its operating asset portfolio to focus on regions and markets where Dynegy has a significant asset position. As a result of this evaluation, Dynegy is considering the divestiture of the Bluegrass peaking facility in Kentucky, the Heard County peaking facility in Georgia and the Cogen Lyondell facility in Texas. In addition, the company previously announced an agreement to sell the Calcasieu peaking facility in Louisiana to an Entergy subsidiary, which is expected to be completed in early 2008.

Jon C. Ogg
May 8, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in any of the companies he covers.