For Subscribers

Get the complete article now!

TWST: Curt, what essentially drives the sector?

Mr. Launer: If you're asking what drives the sector in terms of the share price performance, it's really the three things I just mentioned. It's the earnings growth, which is partly a function of regulated activity and the magnitude of unregulated activity, capital investment principally in the unregulated areas, as well as the international leg we were talking about before. Earnings growth is still the principal driver that we see in the group. Commodity prices would be in second place in terms of a driver for the group. We don't have to change our earnings estimates very much for what goes on with commodity prices. But as David just said, commodity prices do still play a major role in setting the sentiment for the group, investor willingness to put money in or take money out of natural gas-related equities. And third is the merger and acquisition activity and the perception that there will be more of it to come. We can talk about which of the companies has a speculative premium in it right now, and in some cases that might be warranted and in some it might not.

TWST: Curt, what do you think will outperform?

Mr. Launer: Enron (NYSE:ENE) is a multi-part company now. You referred earlier to the analyst meeting they had a few weeks ago where they unveiled their communications strategy. We've gone through that as best we can, and valued it from a DCF valuation methodology that we understand because we've used it before to talk about Enron Energy Services. Enron has a 15 to 18% earnings growth rate in our book with a lot of that coming from the wholesale business. The wholesale business at Enron right now is about 65% of the earnings growing at about 22% per year. So before you even start to think about the other parts of Enron, the wholesale business is showing you an earnings growth rate of over 13%. To get to the bottom line, we value Enron's wholesale business at about $42 a share currently. We add to that $20 a share, which is our separate entity valuation for Enron Energy Services, and another $20 a share for what they call EBS, Enron Broadband Services. Our current target price for Enron is $82 a share.