|
|
Enron Mail |
-----Original Message----- From: Knodel, Mark G. [mailto:mark.knodel@ubspainewebber.com] Sent: Thursday, October 25, 2001 8:27 AM Subject: A few words on Enron from our analyst A FEW WORDS ON ENRON As detailed in past notes including our most recent "Progress, But Much More Work Ahead", we have been highly critical of Enron for some time. In fact, with the benefit of hindsight 20/20 vision, the reality is we should have downgraded our rating a long time ago. Looking ahead, despite the positive move forward in replacing its CFO, there are serious issues and questions remaining. These include those pertaining to: 1) multiple shareholder lawsuits from past management statements regarding the overall underlying performance of the company while there was insider selling; 2) the reality that - beyond potential conflicts of interest - the high profile partnerships in question helped to insulate ENE's earnings from substantial downward portfolio valuations; 3) additional - albeit smaller - charges are likely down the road as other assets are revalued; 4) the successful execution of pending material asset sales such as Portland General; 5) the leverage within its more traditional off-balance sheet vehicles that could ultimately wind up on its books and cause earnings dilution under the unlikely scenario that the company is to be downgraded three notches to below investment grade; and 6) the ability of management to regain credibility with the Street. On the other hand, counterparties continue to actively trade with Enron. It is still the market maker. In the event of a "push-comes-to-shove" liquidity crunch, we believe the company could generate substantial cash by selling a variety of other assets including its Pipelines segment. At a minimum, if ENE shares were to deteriorate much further, we would view it as a potential acquisition target for other substantially larger and better capitalized entities looking to immediately become a sizable player in the global unregulated wholesale / retail energy space. When all is said and done, to the best of our ability in distilling all of the facts and pushing aside the growing level of baseless arb-driven noise surrounding this complex situation, we believe the risk/reward dynamics in ENE shares have improved. That is, though there are no guarantees and headline volatility will be the norm for some time, we believe the odds of this company becoming completely illiquid are low; while the odds of it regaining some level of stature and/or returning an attractive return to shareholders from current levels over the next 12-18 months are medium-to-high. We also believe that the collateral damage to the rest of the space (such as Dynegy and El Paso) is overdone, providing an attractive buying opportunity. With nothing but our client's best interest in mind, we will continue to vigilantly monitor this situation. STOCKS RATED STRONG BUY El Paso Corporation Dynegy Inc. Equitable Resources Calpine Corporation AES Corporation Enron Corp. STOCKS RATED BUY Williams Kinder Morgan, Inc. TECO Energy Atmos Energy KeySpan Energy UGI Corp. South Jersey Industries STOCKS RATED HOLD AGL Resources Energen National Fuel Gas Co. NW Natural ONEOK, Inc Questar Corporation Sempra Energy Southwest Gas UtiliCorp United WGL Holdings Mark G. Knodel First Vice President-Investments UBS-PaineWebber, Inc. 713-654-0218 713-654-0379 fax 800-553-3119 Watts line http://www.painewebber.com/FA/KRW.html - personal web-site ****************************************************** Notice Regarding Entry of Orders and Instructions: Please do not transmit orders and/or instructions regarding your UBSPaineWebber account(s) by e-mail. Orders and/or instructions transmitted by e-mail will not be accepted by UBSPaineWebber and UBSPaineWebber will not be responsible for carrying out such orders and/or instructions. Notice Regarding Privacy and Confidentiality: UBSPaineWebber reserves the right to monitor and review the content of all e-mail communications sent and/or received by its employees.
|