Relieved Investors Push Calpine Higher

The quarter isn't the disaster some had feared. Plus, a Moody's downgrade punishes CenterPoint.
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Credit downgrades and weak earnings continue to darken the once-bright power sector.

CenterPoint

(CNP) - Get Report

, a stand-alone utility that recently shed its risky competitive arm, weathered a crushing blow late Monday when Moody's slashed the company's credit rating two notches to junk status. Moody's blamed CenterPoint's delayed spinoff of

Reliant Resources

(RRI)

-- a trading division with its own financial challenges -- for blocking CenterPoint's access to the capital markets and leading to new credit facilities with "onerous terms." Moody's outlook for CenterPoint remains negative, due to the company's limited flexibility.

News of the downgrade, issued after the market closed Monday, sent shares of CenterPoint diving 11% to $6.80 in Tuesday morning trading.

Calpine

(CPN)

rebounded from a similar slide early in the session. The California-based power producer took an immediate hit, sinking 8% to $2.38, after lowering full-year guidance for the fifth time in three months. But the company, which now expects 2002 earnings of 75 cents to 80 cents a share -- a fraction of last year's $2.14 -- quickly recovered. The stock soared 8.5% to $2.82 after the market shrugged off its early concerns and focused instead on third-quarter results that, while down 50% from last year, still met analysts' expectations of 38 cents a share.

Chris Ellinghaus of Williams Capital expressed more relief than disappointment at Calpine's results.

"They were not a disaster -- and that has been a virtue lately," said Ellinghaus, who is a bullish owner of the stock.

Ellinghaus also expressed confidence that Calpine will successfully roll over $2 billion worth of upcoming debt. But his comments were overshadowed by reminders of CenterPoint, which paid a steep price for its own refinancing package last month. Indeed, CenterPoint has only two weeks to arrange a $420 million payment, or its new $4.7 billion credit facility will immediately come due.

One utility fund manager, who asked to remain unnamed, blamed CenterPoint's liquidity crisis on $500 million in profits that cannot be harnessed as cash for two more years. He said the utility "absolutely" carries some bankruptcy risk.

"There's no reason they should escape just because they're a utility," he said.

Following CenterPoint's downgrade, Credit Suisse First Boston initiated coverage on the stock with an underperform rating. Most analysts recommend holding the stock, which is down 75% for the year.

Analysts aren't shunning all utilities, however. Morgan Stanley in fact raised its rating Tuesday on

Exelon

(EXC) - Get Report

, a nuclear power utility that's within $6 of its 52-week high of $56.99. Morgan Stanley boosted its recommendation on Exelon from equal weight to overweight and set a $58 target price for the stock.

"We are increasingly interested in the strong integrated

companies, which we believe in specific cases have substantial financial strength and potential for good shareholder returns," Morgan Stanley wrote Tuesday.

Exelon tacked on 60 cents to hit $51.45 after news of the upgrade.