CEO Sees 'More to Do' at Dynegy - TheStreet

If companies scored medals for surviving close calls,

Dynegy

(DYN)

would be going for the gold.

Not a year ago, Dynegy was on the verge of bankruptcy. Since then, though, the company's shares have risen nearly eightfold as the energy trader reeled in cash from banks and even cranked out some profits of its own.

By now, Dynegy has rounded some harrowing corners and seems poised for a sustained comeback. But the company -- still clawing for most of the ground it lost last year -- has a long way to go to clear the finish line, and CEO Bruce Williamson knows it.

"I'd have to say we

deserve an incomplete," Williamson says. "We've got some good grades on the books. But we have more to do."

Mainstream analysts tend to agree. Many still remember Dynegy as a $50 stock that crashed and burned. And some view the "new" Dynegy as more of a gamble than an investment, pointing out that its revival has been accompanied by an energy-sector rally that could yet run out of gas.

"It made sense for all of these stocks to go up," Williams Capital analyst Chris Ellinghaus says of the merchant energy sector, following its collapse after the

Enron

debacle. "But how much more can they go up -- and should they?"

That question could prove key to Dynegy's future. So far, the company has managed to secure the financing it needed to avoid Chapter 11. But it must yet clear another big hurdle: a huge payment that some observers worry could derail the recovery.

By November, Dynegy must address a $1.5 billion obligation to its largest shareholder. But Williamson looks upon

ChevronTexaco

(CVX) - Get Report

-- which owns 97 million Dynegy shares -- as more ally than foe.

"Candidly, we've got a good relationship," Williamson says. "And ChevronTexaco has 97 million reasons to do this in a constructive way."

Even so, Ellinghaus cites the obligation as a major concern. And he's not convinced that Dynegy's big challenges will end there. Like most analysts, Ellinghaus is sticking with a tepid hold rating until he can better estimate what Dynegy is truly worth. For now, he simply predicts that Dynegy will "never, ever, ever" be the merchant powerhouse it once was.

"Can they rebuild it into something interesting? Maybe," says Ellinghaus, who has no position in the company. "But it will never be what it was a few years ago."

Wipe-Out

Last October, Williamson took the wheel of a company that resembled a smashed-up race car.

Williamson's fearless predecessor, Chuck Watson, had built Dynegy to win breakneck corporate drag races. And Williamson, a careful man who likes to weigh every move in advance, wasn't exactly the type to speed through red lights.

But there was the offer on the telephone. There were the keys on the table.

"When you first get that phone call, you think about everything the company always was," admits Williamson, who left an executive post at

Duke

(DUK) - Get Report

to accept the top spot at Dynegy. "But then you have to look at it and ask: 'What can this company be?'"

Every Wednesday, Williamson calls Dynegy employees back to the huddle for a progress report.

The company's game plan is always the same. Dynegy will produce fuel. It will sell electricity. It will run a midwestern utility. It will pay down debt.

In essence, Dynegy will take calculated steps to become a safe -- and boring -- company.

"Enron was going to be a worldwide this or that," Williamson recalls. "We're going to be a U.S.

energy producer and ... an Illinois utility.

"It may not sound as glamorous or glitzy. But I think it's a pretty admirable strategy."

The market tends to agree. Since late October, when Williamson brought his cautious brand of management to Dynegy, the company's stock has quadrupled to shoot above $4 a share. But Williamson isn't breaking out the champagne yet.

"We shouldn't kid ourselves," Williamson says. "However long it took for Dynegy to get into trouble, it will take that long and then some to get out."

In the meantime, Dynegy bares almost no resemblance to the $50 highflier -- and old Wall Street darling -- that disappeared with Enron.

Dynegy Fan Club

Right now, every mainstream analyst who follows Dynegy stops short of recommending the shares. The stock enjoyed its last upgrade -- before a slew of downgrades -- 14 months ago. And Wall Street price targets continue to scream that the stock is bound to go lower.

Nevertheless, Dynegy has its share of fans. One group -- die-hard bulls from the Yahoo! message board -- recently trekked all the way to Houston to applaud the company in person.

"They were the largest contingent" at Dynegy's annual meeting, company spokesman David Byford says.

The summer's real excitement was unfolding elsewhere. Down the street,

El Paso

(EP)

was bracing for a huge showdown that -- in the end -- would leave the company's incumbent board barely clinging to power.

Dynegy escaped similar wrath by replacing top management, and most of its board, on its own. But the company still remembers just how sharply fate can turn.

World of Pain

Enron couldn't have chosen a worse decoration for its new lobby.

The company no doubt commissioned the piece -- a heavy curve of glass depicting the entire world -- as a flagrant show of its dominance. But these days, the huge glasswork inspires more fear than awe. It hangs, as if from a thread, in a constant battle with gravity. And it seems almost doomed to come crashing down just as the world did on Enron itself.

Even Williamson has shuddered at the image.

"Sometimes, people have a little too much good fortune," Williamson says of boom-time trends in general. "They get a little too close to the line -- or they even cross it."

Such was apparently the case at Dynegy as well as Enron. Last month, federal prosecutors issued criminal indictments against three former Dynegy accountants accused of manipulating financial statements.

Williamson described the situation as "a personal tragedy" for those involved. But he also pledged to help prosecutors bring corporate wrongdoers to justice.

"We need to get these investigations done so the public can trust this company, Houston companies, energy companies -- companies in general," Williamson says. "It's important for a company, and for a CEO, to be committed to restoring public trust."

Fading Footnotes

For starters, Dynegy doesn't publish 400-page financial reports anymore.

Never a real fan of off balance sheet financing -- or complex accounting in general -- Williamson pushes employees to focus instead on four simple metrics. He believes a company's financial results are determined by nothing more than prices, volumes, costs and one-time charges.

"I want financial results explained with one of four answers," Williamson says. "I don't care what business it is."

Even Byford, who spent time in banking, struggled to make sense of Dynegy's old reports. Today, he claims he can easily read -- and even write -- the company's financial statements.

But for Dynegy investors, especially the thrill-seekers of old, just how good is the read?

Turning the Page

Forty-eight hours before Williamson took over, Dynegy shifted out of overdrive.

The company's primary engine -- which had souped-up earnings and powered growth -- was about to go dead. Dynegy had just pulled the plug on energy trading.

The wild ride was over.

"People have a tendency to look back on the good old days," Williamson admits. "But at least we won't go the way of Enron."

During the latest quarter, Dynegy managed to scrape together a surprising profit of $147 million, or 17 cents a share. Most of that cash came from generating and delivering power during a cold snap in the Midwest. A spike in natural gas prices also helped out. But wholesale trading -- essentially a discontinued business -- would have been a drag.

Five years after laying out plans to become one of few trading powerhouses, Dynegy was in the process of winding down the last 20% of that old multibillion-dollar business.

The company's future goals are more modest. It hopes to pull off a repeat of this year's success -- when it paid off creditors early -- by satisfying a new set of obligations before they come due in 2005. And from there, as competitors struggle with their own maturities, it looks forward to capitalizing on opportunities for growth.

"We've really been focused on looking forward -- not backward," Williamson says. "And we've lengthened our horizon out past hours."

Dynegy spokesman John Sousa, for one, doesn't necessarily miss the "glory days" at all.

"This is more exciting," he says. "Before, the market -- and, to a certain extent, our competitors -- defined what this company was. Now, we're defining what the company will be."