SRI/ESG/CSR Research


CPNLQ: A Micro-Cap with Big Potential

This article was originally published in the Market Insight Section of Street Insight on April 20. Originally posted on the Street Insight section of 5/17/2006 3:46 PM EST

Everyone wants to make an energy play. Well, I've got one for you: Calpine ( CPNLQ.PK) (market cap $153.73 million at $.27 per share.) Calpine is the largest merchant vendor of natural gas generated power in the U.S.

This stock is not for the faint of heart. The company is currently in Chapter 11. In fact, Jim Cramer recently indicated that he thinks the company "will be owned by the bondholders and the stock will ultimately end up worthless"" He is wrong. Let me show you why.

Before I do so, let me note that the spark for this recommendation comes from Richard Williams, an independent energy analyst with Harris Capital in Hartford, Connecticut. Richard is one of the most intelligent and innovative energy stock analysts I know.

He pointed out a few facts:

1. The U.S. Department of Energy's Energy Information Agency (EIA) projects a steep decline in the price of natural gas extending from 2005 to 2015. The cause for the drop is the projected steep increase in deliveries of Liquefied Natural Gas from abroad.

2. The projected decline in natural gas' price also points to increasing competitiveness vs. coal in Texas, southeastern States, Gulf Coast states plus Arkansas and most of Missouri, Illinois and Wisconsin.

3. In addition to improving competitiveness, Calpine has a number of other factors in its favor. New CEO Robert May is a turnaround expert. He led turnarounds at HealthSouth and Charter Communications (CHTR). May at the outset recognized the very capable people who served under departed CEO Peter Cartwright and CFO Bob Kelly. According to Mr. Williams, "This topnotch finance staff, one that kept Calpine out of bankruptcy for at least a year and a half, is intact."

Don't take my word for it: Just a few months into Chapter 11, Calpine has obtained $2 billion of liquidity facilities secured by "the Geysers," 750 mw of geothermal plants in Middleton, California. The firm shed eight unprofitable contracts and cut staff. Because of the unique nature of this recommendation, none of the usual metrics apply. Consider the following income statement and balance sheet data, (as of 3/31) however:

Calpine Balance Sheet

  • Total Cash (mrq): 843.14M
  • Total Cash Per Share (mrq): 1.481
  • Total Debt (mrq): 16.74B
  • Total Debt/Equity (mrq): 4.489
  • Current Ratio (mrq): 1.115
  • Book Value Per Share (mrq): 6.551


  • Revenue (ttm): 10.29B
  • Revenue Per Share (ttm): 22.596
  • Qtrly Revenue Growth (yoy): 36.10%
  • Gross Profit (ttm): 355.09M
  • EBITDA (ttm): 1.13B
  • Net Income Avl to Common (ttm): -867.83M
  • Diluted EPS (ttm): -2.13

I think the stock could rise from $.27 to $4.00 -$5.00 range within 24 months.


The risks are significant. The company has a tiny market cap, though it is larger than that of some of the companies I have recommended, such as Carver Bancorp (CNY).

Obviously, this stock will require you to watch the news very carefully, should you decide to buy. I would create an email news alert on Yahoo! (YHOO) or Google (GOOG) to flag any mention of Calpine in the news.

You will also need to watch the market for Calpine bonds and bank financing activity.

Specifically, anything associated with the recent $2 billion financing. If Calpine bond prices start to move lower, or if banks start talking about taking over collateral, get out, quickly.

William Michael Cunningham


  • B.A. (Economics) , MBA (Finance), A.M. (Industrial Organization)