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Calpine Corp. Down to Strong Sell

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On Sep 25, 2013, Zacks Investment Research downgraded electric utility Calpine Corporation to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Calpine continues to disappoint market expectation, falling short of the Zacks Consensus Estimate in the last three quarters with an average earnings miss of 235.6%. The uninspiring performance has led to downward estimate revisions.

On Jul 25, Calpine reported second-quarter loss per share of 8 cents, widely missing the Zacks Consensus Estimate of earnings of 8 cents by 200%. The company’s third quarter results slated to be released on Nov 5 do not look promising either in the light of recent trends.

In the second quarter, Calpine registered a year-over-year decline in commodity margin in all its services territories. The softer results were primarily due to lower generation output resulting from milder weather and a reversal of coal-to-gas switching in the wake of higher natural gas prices.

Calpine smarting under weak financial results is undertaking a number of initiatives. In Aug 2013, the company started operating two combined-cycle natural gas-fired power generation plants, which together have a generation capacity of more than 900 megawatts. However, it appears that Calpine will have to take more proactive measures to turn the tide. Long-term sales growth is presently pegged at -9.86%.

The Zacks Consensus Estimate for 2013 decreased 13.2% in the last 60 days to 53 cents per share. For 2014, the Zacks Consensus Estimate decreased 8.3% in the last 60 days to 84 cents per share.

Not all electric utilities are performing as poorly as Calpine Corporation. Other utility stocks performing well, with a favorable Zacks Rank, are UNS Energy Corporation , The AES Corporation (AES - Free Report) and Brookfield Infrastructure Partners L.P. (BIP - Free Report) . UNS Energy has a Zacks Rank #1 (Strong Buy) while AES Corporation and Brookfield Infrastructure Partners retain a Zacks Rank #2 (Buy).

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