CMS Energy ( CMS) rallied Wednesday after rolling out a plan to sacrifice two core businesses, while maintaining a merchant energy operation that has sullied its reputation and hurt its bottom line.

The Michigan-based company announced plans Wednesday to sell its pipeline and field services businesses -- both stable sources of cash -- after posting a second-quarter loss of $75 million, or 56 cents a share. One-time charges, including $105 million for discontinued operations, pushed the quarter into the red. Otherwise, CMS would have posted net income of $59 million, or 44 cents a share, easily topping last year's figures and analysts' expectations of 27 cents a share.

That upside surprise, coupled with reaffirmed 2002 earnings guidance of $1.50 to $1.55 a share, sent CMS soaring 12%, to $8.88, Wednesday afternoon. The stock led the sector with that double-digit gain long after a morning rally fizzled.

Despite investor enthusiasm, analysts worried over a new CMS strategy that will essentially strip the company down to a Michigan utility with power plants and a flailing merchant energy operation.

"I don't want to be impolite," one analyst said during a conference call Wednesday. But is this "curing the symptoms rather than the underlying causes?" he asked. After all, "The pipelines looked like sensible and solid investments."

In contrast, CMS' energy trading business cost the company $18 million during the second quarter. The same operation generated $33 million during the comparable quarter last year, prior to the massive fallout from Enron's bankruptcy and CMS's own scandals with roundtrip trading. Government investigators are probing the accounting and business aspects of that practice, in which companies boost their income statements by engaging in deals with little economic value.

CMS insisted that energy trading remains a viable business, touting a preliminary agreement with a creditworthy partner that could provide its trading arm with crucial financial backing and return it to profitability.

"It's not a joint venture," said David Joos, president and chief operating officer of CMS. "It's an enabling agreement that would allow us to bring deals to them ... on a case-by-case basis."

That limited partnership, a division of Harvard Management, would evaluate the terms and risks of each deal, then set a fee for providing credit support to CMS, Joos added.

CMS's renewed commitment to energy trading comes one day after Aquila ( ILA) -- formerly a top energy merchant -- announced plans to exit the business entirely. Players throughout the sector have scaled back their trading activities considerably.

Some, like Dynegy ( DYN) and Williams ( WMB), have found themselves selling or pledging their most valuable assets just to maintain adequate liquidity. CMS appears to be following a similar path, offering up assets that generate roughly $300 million in EBITDA -- or earnings before interest, taxes, depreciation and amortization -- in an effort to deleverage its balance sheet.

The company is attempting to sell its Panhandle and Trunkline interstate natural-gas pipelines, as well as some liquid natural gas and field services assets. The market has recently been flooded with assets, including prized pipelines that have been snatched up for a song.

Throughout the industry, cash-strapped energy players are shedding valuable pieces of themselves in order to stave off credit downgrades and liquidity problems that sometimes threaten bankruptcy. Most recently, Aquila announced Wednesday that its 80% stake in European-based Midlands Electricity is up for grabs. Meanwhile, CMS has finalized $2.6 billion in asset sales, with more to follow through early next year.

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