NEW YORK (Dow Jones)--Shares of merchant power-generation companies soared Friday, fueled by a recent rebound in natural gas futures prices.
Independent power producers such as Dynegy Inc. (DYN), Calpine Corp. (CPN) and NRG Energy Inc. (NRG) rely on market prices rather than regulated rates for their output. The companies have been battered amid a steep decline in natural gas prices and a slump in electricity demand. Plants that run on natural gas often set prices in regional power markets, resulting in a strong correlation between natural gas and power prices.
Shares of Dynegy were recently up 20% at $2.09, Calpine shares rose 17% to $11.11 and NRG was up 10% at $21.15. Others in the sector, including Mirant Corp. (MIR), shot up as well Friday.
"My call is it would be all gas related," said Brandon Blossman, an analyst with Tudor Pickering Holt & Co., of Friday's gains across the sector.
Natural gas futures have rebounded by more than 20% since the end of April, when gas traded near its lowest in more than six years, with the biggest gains coming in the last week. Gas for June delivery on the New York Mercantile Exchange was recently up 4% to $4.243 a million British thermal units.
Blossman said strength in natural gas prices can have a two-fold effect on the shares of power producers. First, power producers benefit from the expectations of higher margins as power prices rise. Then, the macroeconomic factors often pushing up gas futures are viewed as positives for power demand, Blossman said.
In the last week, several power producers have reported stronger-than- expected first-quarter earnings, as hedging programs have protected earnings over the near term.
Merchant power stocks don't seem to have been hurt by a dampened outlook for merger and acquisition activity. Speculation of deals provided a boost to stocks in recent months. But a week ago, RRI Energy Inc. (RRI) ended a strategic review without selling its whole business. Then on Friday, Mirant executives downplayed activity in the near term during a conference call with analysts.
http://online.wsj.com/article/BT-CO-20090508-713313.html
No comments:
Post a Comment