Barron's Thinks Dynegy (DYN) Could Double In '08
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Barron's highlighted Dynegy, Inc. (NYSE: DYN) this weekend in an article explaining why the Company's stock price could catch a double in 2008.
The article attributes Dynegy's potential to electricity demand that is finally catching up to its supply: the Company doubled in size last year by acquiring power plants across the nation, bringing its total amount of plants to 29 in 15 states, now generating more than 2,000 megawatts of electricity.
As utility companies usually want to have excess capacity available in order to meet unexpected spikes in demand, most of these companies aim at a reserve margin of about 15% above peak demand. As Dynegy expects a slowdown in supply in 2008, the Company believes its prices will rise in response, also meaning Dynegy will begin to increase its production volume. By 2010, Dynegy also expects that the supply of energy in its Midwest segments will fall below the 15% level, strengthening production possibilities further.
Barron's also sees the replacement value of Dynegy's plants as a source of value: one analyst commenting in the article believes the Company's plant could be valued at $15-$18 per share, but Dynegy itself sees even greater value -- around $18-$24 per share.
Lastly, Barron's notes Dynegy's strong cash position and free-cash flow yield of 4.2%. With an expected $200-$300 million in free cash flow generation during 2008, and an estimated additional $300 million by 2010, the article points out that as a company's free cash flow yield nears 5%, management will often use this cash to introduce a dividend or stock buyback program.
The article attributes Dynegy's potential to electricity demand that is finally catching up to its supply: the Company doubled in size last year by acquiring power plants across the nation, bringing its total amount of plants to 29 in 15 states, now generating more than 2,000 megawatts of electricity.
As utility companies usually want to have excess capacity available in order to meet unexpected spikes in demand, most of these companies aim at a reserve margin of about 15% above peak demand. As Dynegy expects a slowdown in supply in 2008, the Company believes its prices will rise in response, also meaning Dynegy will begin to increase its production volume. By 2010, Dynegy also expects that the supply of energy in its Midwest segments will fall below the 15% level, strengthening production possibilities further.
Barron's also sees the replacement value of Dynegy's plants as a source of value: one analyst commenting in the article believes the Company's plant could be valued at $15-$18 per share, but Dynegy itself sees even greater value -- around $18-$24 per share.
Lastly, Barron's notes Dynegy's strong cash position and free-cash flow yield of 4.2%. With an expected $200-$300 million in free cash flow generation during 2008, and an estimated additional $300 million by 2010, the article points out that as a company's free cash flow yield nears 5%, management will often use this cash to introduce a dividend or stock buyback program.
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