Tuesday, September 02, 2008
Forgot to mention 2 things..volume today is relatively light in MLP land which is good. Also Constellation Energy Partners (CEP) continues to sink down another 50 cents and headed for a 12 handle shortly along with almost a 18% yield. Either the distirbution is getting cut in half or this is a double if MLPS rally over the longer term. My guess is the pressure continues as Lehman still holds about 2 million shares according to their most recent filings; AND the uncertainty over what the leaders over at CEG do with their 20+% stake.
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joseph cioffi's Source Page - Associated Content
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Barron's:
Tuesday, September 2, 2008
HOT RESEARCH AM
Constellation Energy's Stars Not Aligned
Jefferies & Co. sees more pressure for the company to issue equity.
Constellation Energy Group (CEG: NYSE)
By Jefferies & Co. ($68.49, Aug. 29, 2008)
WE ARE DOWNGRADING Constellation Energy Group (ticker: CEG) to Underperform from Hold based on concerns that Constellation will come under increasing pressure to issue equity.
Additionally we anticipate reduced earnings from Constellation's commodity business going forward as it sells and restructures those businesses.
The U.S. Federal Energy Regulatory Commission investigation into loop flows in the Lake Erie region may result in penalties and lawsuits, which may further pressure the company's trading operations.
We are maintaining our 2008 earnings-per-share estimate of $5.55. Our 2008 estimate is slightly above the midpoint of the company's guidance of $5.25–$5.75.
We are reducing our 2009 EPS estimate by 60 cents to $5.90 to reflect the loss of contribution from businesses up for sale, lower assumed trading and dilution from an assumed equity issuance.
We are reducing our price target to $60.00 [from $71]. Our revised price target is based on discounted-cash-flow valuation using a 7.7% after-tax discount rate on after-tax unlevered cash flows through 2014 and a 7.8 times blended multiple on earnings before interest, taxes, depreciation, amortization and rent (Ebitdar) discounted back to the current year at a pretax discount rate of 12.0%.
Our Ebitdar and net debt calculations are adjusted for unamortized energy contracts. Our discounted-cash-flow estimate is also based on current forward electric and gas prices including the contribution of capacity auction payments in PJM [a regional transmission organization] and New York.
Based on Thursday's closing price for Constellation of $68.49, this represents 12-month price depreciation and total return potential of negative-12.4% and negative-9.5%, respectively, including the company's current yield of 2.9%.
-- Paul B. Fremont
--Debra E. Bromberg
-- Anthony C. Crowdell
-- Ivana Ergovic
Too bad that CEP has nothing left on the line of credit as CEG will be eager to drop down assets.
Looks like the MLP rally is now over. Last week's rally on thin volume, should evaporate in a day or two. Then we can go back to the daily destruction of value that we are used to.
Clearly the large seller of MLP's was on vacation last week. He is back and we now can watch our portfolios get wrecked.
CEP down another 6% today. The good news is that at this rate in another 15 days we'll be at zero, so we can't go down any further from there...
I will NEVER own another E&P MLP again. They are classic value traps.
This Selloff Is Phony
By Jim Cramer
RealMoney.com Columnist
9/2/2008 2:25 PM EDT
The market's a little preposterous here. We've got that moment here where people are saying, "We could only get this kind of decline in a recession," I am not buying it at all. I think that the selling is overdone and seems like it is just technical, as in, "We opened up big, and that was a trap, so now we have to fade everything."
To me, this is the type of selloff that means nothing because what has happened in the wake of every one of these big oil declines is a multiday rally of the companies that do better when gasoline goes down.
Still, what's so odd is the vicious selling of stocks when they're already down so much. The selloff seems as artificial as that amazing rally we had in the oil stocks last week when Conoco (COP) and Occidental (OXY) were up huge. For example, who the heck sells National Oilwell Varco (NOV) down $6 knowing that the stock was at $76 -- 9 points higher -- just a few days ago? Who sells Anadarko (APC) near its 52-week low when it's buying back 18% of its stock back and is so flush with cash? Who sells Frontline (FRO) down $4.68 with that yield? Who decides to crush XTO (XTO) or Chesapeake (CHK) when nat gas might indeed be the fuel of the future?
Beats me.
But it sure seems irrational. I think the rally was real; the selloff is phony.
The seller of NGLS is back with a vengence today.
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