cum. 44 what do you think of this 2.1 bil. purchase!! will it affect stock price or div. thanks. rei off about 33% over a years time $33 to 52 weeks low!!! Looks to me rei having hard time keeping up with what they already own. Good for my drip plan.
I am certainly glad to hear the opinions of several other knowledgeable people about the Sithe purchase. That adds a lot of value to this board, and helps me a lot!
First of all, if this is such a great deal today at $2.1B, I am troubled that it did not seem such a great deal 1-1/2 years earlier at $1.6-1.7B. This is assuming that what GPU sold, is what REI bought -- if there has been any value added (like that hypothetical 2700 MW of brand new gas turbines), REI would be highly remiss to not point that out quite clearly.
I am far more confident of investing in a company which knows what it wants, and doesn't change its mind all that often. In 1-1/2 years time we have gone from
"South America is the place we will concentrate and make great profits", to "South America is what we DON'T WANT, instead the best oppotunities are in North Europe and America".
The rather frequent change of direction seems contradictory to me, rather than showing ever-more-brilliant new opportunities. You will notice most other utilities staying their course rather more consistently.
Before, REI claimed it expected to grow earnings 8-10%/year, which would be most applaudible if they could do it. Now they have a new direction and a claimed target of 10-12%/year, which would be extremely good. But what strategy is going to take them to this level of EPS growth? The experience with Argentina, Brazil, and Colombia already shows that REI can misjudge opportunities.
We will be in great shape if REI does not misjudge current opportunities, and they deliver on that 10-12% growth target. The stock price should treble if that becomes reality. But I will have to trust somebody else to judge their financials, because they already have mutated their income statement beyond the ability of the normal investor to understand it.
It would be prudent to remember the experience of CMS Energy (NYSE:CMS), which also set an ambitious 10% earnings growth target, missed it and has to cut its dividend in order to maintain financial health. Supposedly CMS will recast itself as a higher-growth company with a far smaller dividend. Mr. Market hated that -- CMS shares are now down almost 60% this year.
Let us hope REI will get us better results, even if it doesn't really know how it will get there. -- C44
This explains a little more about the deal, including the development properties. It also explains some of the value of the deal to REI in particular, that being that the acquisition of these assets complements REI's trading position in PJM nicely. One area in which REI has been very successful is electricity trading. This purchase could allow them to trade even more effectively.
REI also noted somewhere (don't remember where) that this purchase should be immediately accretive to earnings.