Morgan Stanley: Calpine's Earnings Call Supports Coal-Gas Switching Thesis

According to a research report published by Morgan Stanley earlier today, Calpine Corp.'s CPN earnings call highlighted the extent of coal-gas switching in the power sector. Morgan Stanley went on to explain in the report, “Low natural gas prices drove much greater power production levels from Calpine's North and Texas plants – increases of 51% and 61%, respectively, from a year ago. Given that March 2012 Henry Hub natural gas prices are ~2.50/mmBtu, or 25% below the 4Q11 average spot price, we believe Calpine's power production could be substantially higher in 1Q12 and throughout the year. In this very low natural gas price environment, we think Calpine's plants can begin to produce substantially greater volumes during off-peak periods, especially in the mid-Atlantic PJM power market (our joint analysis of coal-gas switching, published on February 1, 2012, and developed in collaboration with our commodity strategy and coal/equity research colleagues, shows a large increase in gas-fired power plant output at sub-$3 natural gas).” Morgan Stanley maintains its Overweight rating and $22 PT on Calpine, which is currently trading at $16.28.