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With the

lights dimming at

Enron

(ENE)

, this week's Under the Radar takes a look at the other sweetheart of the independent power business:

Calpine

(CPN)

.

Where the Love Is

Second only to once-mighty Enron, California power-plant developer Calpine has been a major Wall Street darling. Sell-side analysts almost universally adore it: According to data from Thomson Financial, 15 of the 18 analysts who cover Calpine tout it as strong buy. Indeed, like Enron, Calpine's capital-intensive business generates the need for regular trips to the till, which translates to lucrative fees for investment bankers tied to those analysts.

While Calpine's ratings haven't budged, its stock certainly has. It has slid nearly 50% this year, off more than 70% from its late-March high. It could have further to fall.

"At Calpine, there is still plenty that can go wrong," says Bryan Dutt, principal and portfolio manager at Ironman Energy Capital, a Houston-based energy hedge fund. "Power prices have fallen, power demand has fallen, and the company's earnings potential has fallen right along with it." Dutt, who is short Calpine stock, adds, "Building power plants is how Calpine grows, and there isn't a need to build like they anticipated. That's the endgame."

Fallen From Grace
Analysts still like Calpine, but the market shuns it

If that's the case, Calpine's story could get worse. In the past quarter, Dutt says, Calpine's earnings were saved by financial transactions that won't likely be repeated. "The bulk of their earnings came from natural gas hedging, and those hedges dry up in the fourth quarter," he says. "What are they going to do for their next act?"

That's a good question. According to Thomson, estimates call for Calpine to earn $2.04 a share this year and $2.52 in 2002. The 2002 numbers appear to be a stretch, especially considering what the company has done to meet this year's estimates.

"Calpine has been good at making accounting shifts that help them make their numbers," says a merchant power analyst who asked to remain unnamed. "Even then, it will be a challenge to meet their near-term earnings." Calpine has used certain tactics, such as adjusting the effective tax rate and shifting to mark-to-market accounting, to meet its aggressive earnings targets, he says.

That, the analyst says, simply sets the company up for future problems. "It looks like they could miss their earnings numbers, if not in the coming quarter, in the next year," he says. "If that happens, the $2.50 estimates quickly go to $2, and if you assume multiples contract, Calpine is potentially a $15 stock. It is probably the best short in the group."

Dutt agrees, also noting that the company is facing a real potential shortfall from its Encal subsidiary, a Canadian natural gas company that Calpine acquired earlier this year. "Original management has left the company," Dutt says, "and writedowns at Encal are going to impact the bottom line."

Even the most ardent bulls are beginning to question Calpine's stamina. On Friday, UBS Warburg power analyst Ron Barone lowered his target price for Calpine to $35 from $41, although he reiterated his strong buy rating. UBS has provided banking services for Calpine.

Still, Calpine continues to stand by earnings-per-share guidance of $2 to $2.05 for the current year and $2.45 to $2.60 for 2002. Calpine Chairman and CEO Peter Cartwright said in a conference call Thursday that the company expected "no negative financial impact" from Enron's problems, even though Enron's travails have created "a negative and unwarranted impact on Calpine stock."

If Enron taught us anything, it's that a CEO's complaints about his company's stock price are never a good sign.

Vegas, Baby, Vegas

Near the Strip? Join me next Thursday from Las Vegas' Orleans Hotel and Casino for

TheStreet.com's

Martini Chat. We'll broadcast live from the Orleans Sportsbook as my co-host Eric Gillin and I tackle the Vegas economy post-Sept. 11, the week in the markets and, of course, a complete look at the early lines on the upcoming college football bowl games.

We'll have plenty of great giveaways and even a craps tutorial from yours truly. The show runs from 5 p.m. to 6 p.m. EST each Thursday and can be found on

TheStreet.com

. The fun at the Orleans will begin about an hour before showtime!

If you're in Vegas on Thursday, come down and see us. We might even toss in a quarter or two for a pull of the slots.

Ka-ching!

Christopher S. Edmonds is president of Resource Dynamics, a private financial consulting firm based in Atlanta. At time of publication, neither Edmonds nor his firm held positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send it to

Chris Edmonds.