There’s a lot more to Dynegy’s fiscal year 2015 earnings
Dynegy: A promising turnaround after bankrupcty (Part 13 of 14)
Revision in fiscal year 2015 guidance
Dynegy Inc. (DYN) revised its full-year guidance in its 3Q14 release in November last year. An increase in wholesale power prices in major markets is the major reason behind Dynegy’s revision of its fiscal year 2015 guidance.
The earlier forecast assumed power prices as of August 15, 2014. The current guidance assumes wholesale power prices for major markets as of October 20, 2014.
Impact on financials
Dynegy’s $6.25-billion deal has added significant value to the company’s shareholders. At current projections, Dynegy’s EBITDA (earnings before interest, taxes, depreciation, and amortization) per share is higher by 148% than pre-deal EBITDA per-share estimates for fiscal year 2015.
Dynegy’s revised adjusted EBITDA range for fiscal year 2015 has increased to $1,350–$1,550 million from $1,200–$1,400 million. This translates to a free cash flow (or FCF) of $600–$800 million.
For fiscal year 2015, Dynegy (DYN) has a free cash flow yield of 16%. This is the highest in the industry. Free cash flow yield refers to the measure of projected free cash flow per share for fiscal year 2015 as a percentage of current share prices. Stocks with high free cash flow yield offer better value for investors.
At current stock prices, NRG Energy (NRG), AES Corporation (AES), and Brookfield Infrastructure Partners (BIP) will trade at high free cash flow yields for the next year. NRG Energy and AES Corporation are part of the Utilities Select Sector SPDR (XLU).
Interest payments to rise
The only negative in the revised guidance is higher interest payments. Dynegy (DYN) estimates interest payments to rise as the cost of financing the acquisition is now expected to be higher than earlier estimates. Dynegy forecasts interest payments of $525 million compared to $480 million forecast in August. Dynegy’s weighted cost of funding the acquisition is estimated at 7.18%.
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