Calpine Corp. to Sell Power Units, Shares Up - Analyst Blog

Calpine Corp. CPN recently announced that it will sell six Southeastern power plants in the U.S. to LS Power for $1.57 billion in cash. This transaction will help the company to focus more on its core competitive wholesale power markets, particularly in Western U.S., Texas and the Mid-Atlantic.

This transaction is a part of the company's strategy to monetize its non-core assets and utilize the proceeds for further development of core business operations. Moreover, this announcement earned a positive reaction from the stock market. The stock price increased 4.6% on Apr 21, 2014.

These combined-cycle power plants together generate approximately 3.5 Gigawatt of electricity in Oklahoma, Louisiana, Alabama, Florida and South Carolina. The transaction is expected to close in the second quarter of 2014 subject to necessary regulatory approvals.

The company expects to generate $1.53 billion of net cash from selling these assets. The company expects to utilize existing federal and state net operating losses to almost entirely offset the projected taxable gains from the sale. Apart from that the company plans to pay down debt, invest in acquisition and repurchase shares of common stock from the market with the proceeds.

Calpine Corp. is an independent power generating company which has more than 29,000 MW of generation capacity with a fleet of 94 power plants in operation or under construction in the U.S.

This Zacks Rank #2 (Buy) stock surpassed the Zacks Consensus Estimate by 114.29% in the fourth quarter of 2013. The impressive performance was driven by favorable portfolio changes and higher regulatory capacity payments, in addition to new contracts. The Zacks Consensus Estimate for 2014 is pegged at 73 cents per share, reflecting year-over-year growth of 90.8%.

However, better-placed stocks in the space include Zacks Ranked #1(Strong Buy) NRG Energy, Inc. NRG, CPFL Energia S.A. CPL and Entergy Corporation ETR.