Some investors seem to see a light at the end of this long dark energy-trading tunnel after all. Several of these beaten-down stocks, led most notably by Williams ( WMB), have rallied in recent weeks as the worst of their liquidity worries passed. In some cases the companies, by raising needed cash and posting solid operating results, have even begun to reverse a bad-news cycle that drove their once-highflying shares into the low single digits. For its part, Williams delighted investors Wednesday with upbeat profit forecasts for core segments outside its flailing energy trading unit. The stock, down more than 90% over the last year, jumped 29% as value hunters hoped to cash in on the panic caused earlier this summer by the persistent rumor that the company was headed for a massive restructuring. The rally comes even as some observers say the bigger picture continues to look ugly for the energy traders. "They gave an encouraging presentation," said John Olson, an analyst at Sanders Morris Harris who doesn't own the stock. "They're still like the Vatican -- asset-rich and cash-poor -- but it looks like they will rise and fight again."
Williams said it expects to generate up to $1.51 billion in recurring profits this year from its natural gas pipeline and energy services businesses, the twin engines behind its growth before a disastrous foray into energy trading. The company gave no earnings guidance for its energy trading unit, which has been unable to attract either a buyer or a partner. Williams projected 2002 earnings of $630 million to $660 million from its pipelines and $780 million to $850 million from energy services. Following the news, Williams' stock took off, soaring 80 cents, to $3.61. But tempering that enthusiasm was concern from some experts, who continued to dwell on the fine print in a recent regulatory filing. With the once-hot energy trading business foundering and multiple government investigations looming over the entire sector's business and accounting practices, some observers have yet to shake their concerns about the company's future. "Their segment profits are in line with our models," said Mark Easterbrook, an analyst at RBC Capital Markets with no stake in the company. "But the interest expense from their financial package was higher than we expected. So we may see some estimates come down." Easterbrook spoke in reference to the last-minute financing Williams secured last month in a narrow escape from bankruptcy. Specific terms of the loan packages, worth $2 billion, were finally disclosed when Williams filed its quarterly earnings report last week with the Securities and Exchange Commission.
The Price You Pay
Just what various energy trading outfits agreed to in securing desperately needed loan packages continues to intrigue investors. While no shareholder would argue that companies such as Williams didn't need the money, many skeptics have claimed that cash-strapped companies essentially gave away the store simply to keep their stocks afloat through the rest of the year. The filing showed that Williams pledged virtually all of its midstream natural gas and liquids assets to secure a $1.1 billion credit facility provided by Citigroup ( C). The company had earlier disclosed that its valuable Barrett Resources assets, purchased for this year for $2.8 billion, are securing a $900 million credit line provided by Lehman Brothers and a unit of Warren Buffett-led Berkshire Hathaway ( BRKA). "I think this company has pledged more than a college student who's sworn allegiance to the flag every day from the first grade on," said Fredric E. Russell, whose Tulsa investment firm owns nearly 200,000 shares of the stock. Russell has long voiced criticism about Williams, saying the company is unresponsive to shareholders and unwilling to own up to its mistakes. Williams needs to address these matters, Russell said, if it hopes to win back the market and fuel the current rally. "Nothing would please investors more than for Williams to work diligently to be crystal clear in its press releases and its numbers and stop blaming the media for all of its problems," he said.