Expect Higher Margins for Dynegy

Dynegy Inc. (DYN - Snapshot Report) received a jolt in the first quarter, when higher mark-to-market losses driven by rising forward power prices affected earnings. Higher prices in the forward markets were on account of overall tightening of electricity markets and rising energy commodity prices.

This will invariably lead to higher margins and sales volumes over the long-term. Furthermore, the LS Power transaction enabled the company to play its role in the merchant power space, whose long-term prospects also appear to be improving.

With its focus on electricity operations and geographically well-diversified power generation fleets, Dynegy’s rationalized and consolidated asset portfolio improved visibility of its underlying earnings power. Accordingly, with a predominantly bullish outlook, we maintain our Buy recommendation on DYN with a six-month target price of $9.25, representing 16.4% upside potential.

Dynegy has been making progress in rationalizing the business portfolio and strengthening its financial health. The LS Power combination has significantly enhanced the scale and scope of the company by creating a portfolio of more than 20,000 megawatts of generation capacity.  Dynegy’s earnings were affected in the reported 1st quarter of 2008 by higher mark-to-market losses on account of rising forward power prices.

Read the full analyst report on DYN