Gary you would think low oil would be good but this morning with oil below $30 and down over 5% in pre market LUV is showing down in pre market. Hopefully next week they will report good earning and it may be a good catalyst for a move up. Still looks like a great buy to me. Should continue to generate a ton of cash, low debt, continued growth with new routes.
Sentiment: Strong Buy
Hopefully US markets will show some leadership but we seem to be followers as of late.
Yes I see oil up I wonder if that is due to the tensions between Iran & Saudi Arabia. Although I don't think that will help SUNE. The low price of natural gas to me is the key factor as that depresses wholesale power prices. The East, South & Midwest have had a lot of coal fired units off because of low NG prices. California markets are really dependent on NG as they have virtually no coal fired units with the exception of whatever they import which is about 30% of their supply. NG prices have increased from $1.80 mmbtu's to over $2.30.
4th quarter results will be very good. Should around $4 in 2016. Typical forward pe of 16 puts it at $64 sometimethis year. Low debt, union contracts being workrd out and tons of cash building up.
Sentiment: Strong Buy
Here is the way I look at it. I wouldn't worry to much about the value of the assets but keep in mind they do have 50,000 MW's located all over the country. To build similar assets to what they have a minimum price is about 2000/kw or 2,000,000/mw so building 50,000 mw of replacement power is 1000 billion. At these power prices no one will build new generation or it will be minimal. This is important as more generation is retired this year. Here is what the company needs to so in order of importance
1) consolidate all the renewables that are losing money into a subsidary company and insulate that from the core business (fossil generating, retail electric & select utility renewable generation. They are doing that.
2) Dump non performing assets and see what cash you can get for them. They are doing this.
3) Cut O &M costs as much as practical.
4) First priority. With cash is to service debt, interest expense & debt due. They should be able to do this.
5) As all this is playing out try to maintain the dividend. This will provide stock support.
NRG will probably have an income of about $15 billion next year. They only need about $1.2 billion or less to service the debt & about $200 million for dividends. I am not saying this is a good buy here but if it drops due to market conditions to the $8's it would be a good bet in my opinion. Their revenues for this quarter are going to be bad due to power prices. IMHO
Here is the scenario I see. They may go down on eanring report if they disappoint which I think they will based on the recent moves with the renewable portion of the company that has been a big failure. Sentiment will get really bad. The big plus here is that their dividend right now is pretty good. They only have to pay about $205 million to sustain to dividend which isn't alot for a company with revenues like theirs. They are going through a lot of cost cutting and when they get rid of their renewable business could probably increase the dividend depending on waht they do with the renewables. Their fossil generation business is still pretty solid and should continue to be so as they are diversified across the country. Their retail business should also do well. I am not saying buy for the dividend. I'm saying if this drops to say $10-$11 on sentiment due to earning it would be a buy as the dividend should support that price and when things settle out it would creep back up. In 2014 they had a lofty valuation because they were touted as being a big solar company, now they are At a fairly reasonable price for a company that generates power and has a retail arm. Who knows could be worse than we realize and we could be in single digits. My opinion is the CEO made some horrible decisions in the renewables end that really killed shareholder value. Low natural gas isn't helping. Even if the fed raises rates it won't be much and is already factored in. A big plus is if they could sell their "green company" and get out of it with a reasonable loss and move forward. However with itc for solar going from 30 to 10% things don't look good for that. My strategy is if they drop to the $10-$11 area short term, which they probably won't I would be a buyer. IMHO
Might be overbought based on a short term trading basis, valuation still looks good. At a 13 p/e based on 2015 earning. average annualized p/e of 16. If oil prices stay lower LUV could see $50 to $55 a share. Plus it is one of the industries still doing well. I think thay are going to buy back more stock.
Nice gains everything continues to look positive, low debt, good cash flow, low oil prices, valuation still looks good
I don't think earning are going to be that bad. Must be natural gas and future earning concerns. Dividend looking good.
Last quarter(2nd) luv saved 500 million in fuel costs. Crude was $50 to $60 bbl. In July and August crude has been $40 to $50. Should be a good third quarter. The thing is they only need crude to be below $60 to do really well. They need to use the extra cash to pay down debt, which is already low and buy back stock, if the price does not go up excessively. This is a well run company.
Sentiment: Strong Buy