1. Utilities Stock Presentation
By Samuel Conkright & Likun Fan

2. Overview Utility Sector Size = $1.15 Trillion
SIM Utility Sector Weight = 2.24%
Currently Underweight = 1.02%
Calpine SIM Weight = 0.73%
NextEra SIM Weight = 1.51%

3. SIM Utilities Company Ticker Unit Cost Current Price Calpine Corp CPN
Target Price
Recommendation
Calpine Corp
CPN
$14.00
$10.62
$13.70
HOLD/BUY
Nextera Energy Inc
NEE
$118.64
$129.43
$130.93
HOLD

4. Economic Factors GDP Interest Rate
Source: Federal Reserve Bank of St. Louis
Source: Federal Reserve Bank of Atlanta

5. Source: California Energy Commission

6. Calpine Corp.
Market Data:
Current Price: $10.62
Target Price: $13.70
Market Capitalization: $4.172B
Shares Outstanding: M
52 Week Range: $10.39–$16.07
YTD Change: -7.09%
Beta: 1.22
P/E (ttm): 13.4
EPS (ttm): $.26
Average Volume (3 month): 4.66M
Target Return: 29%
Calpine is the largest generator of electricity from natural gas and geothermal resources in the United States with robust commercial, industrial, and residential retail operations in key markets.
Based in Houston, TX, Calpine accounts for 80 power plants in operation, representing approximately 26,000 megawatts of generation capacity. Through their wholesale and retail business lines, they serve over 25 states, Canada, and Mexico.
Calpine Corp. was founded in 1984, and currently represents a Fortune 500 company traded under CPN on the New York Stock Exchange.

7. Calpine Recent News
December 1, 2016: Calpine closed on the acquisition of Noble Americas Energy Solutions, the nation’s largest energy independent power supplier to commercial and industrial retail customers.
February 23, 2017: Huge winter storms out West have produced significant snowpack across the coast and have increased lake levels, creating a huge opportunity for hydropower generation. This in turn decreases the need for independent power producers, such as Calpine, as utility firms don’t need to supplement their power supply with increased hydropower generation.
February 10, 2017: Calpine CEO Thad Hill reported of an extensive debt reduction plan in his 4Q earnings call and report. Their plan calls for $2.7 billion of committed or planned debt paydown by 2019, reducing leverage on adjusted EBITDA by 1.5x from current levels.

8. Business Analysis Growth Drivers: Acquisitions to Expand Retail Market
Fleet Equipped to Handle Environmental Regulations
Shifting Market Towards Renewable Energy
Competition for PPA’s

9. Calpine Key Risks Natural Gas Price Fluctuations
Heavy Dependence on Other Utilities
Regulations
Catastrophe Risk
Interest Rate Hikes

10. Financial Analysis Revenue Last Reported Year 1YR Forward Estimate
$6.716B
$5.720B
$5.800B
$5.470B
% Growth from prior year
3.77%
-14.83%
1.39%
-5.69%
Earnings
Last Reported Year
1YR Forward Estimate
2Yr Forward Estimate
3YR Forward Estimate
EPS
.26
.44
.69
.79
Analyst Estimates .3
.45
.75
.81

11. ROE Analysis
2012
2013
2014
2015
2016
Calpine
4.8
.37
27.45
7.25
2.89
Dynergy X
-15.11
-11.47
1.09
-60.63
NRG
3.32
-4.08
.81
-29.79
AES
-17.35
2.56
17.88
8.25
-38.03

12. Other Ratios ROA 2012 2013 2014 2015 2016 Calpine 1.17 .08 5.42 1.27
.48
Dynergy X
-7.25
-3.30
.44
-10.12
NRG
.95
-1.12
.36
-17.40
-2.45
AES
-2.09
.28
1.94
.81
-3.10
Operating Margin
2012
2013
2014
2015
2016
Calpine
18.29
13.87
24.77
13.21
12.49
Dynergy
-7.66
-21.69
-.76
1.65
-14.82
NRG
4.16
3.04
8.01
-27.53
4.27
AES
19.28
19.05
16.92
17.84
16.48

13. Valuation Analysis Ticker P/E P/S P/B P/CF EV/EBITDA Average 13.21 .44
1.51
4.58
10.17
Calpine
13.4
.81
1.32
6.07
Dynergy Inc
13.01
.43
.59
17.82
13.91
NRG Energy
20.42
.26
1.69
2.96
AES Corp
8.70
2.59
3.08
7.60

14. Sensitivity Analysis

15. CPN Final Price

16. CPN Recommendation HOLD/BUY Expanding Retail Platform
Move Towards Renewable Energy w/ Increasing Regulations
Sector Outperforms in Downturn
Modern, Efficient Power Plant Fleet
Increasing Natural Gas Prices
Dependence on Competitors
Increasing Alternative Energy Options

17. Source: Fortune Magazine

18. Business analysis Overview
Regulated electric utility market: Florida Power & Light (FPL) 67% revenue
Deregulated electric utility market: NextEra Energy Resources (NEER) 30% revenue
Industry leader in renewable energy: 12/31/ ,900 MW generating capacity, 16% and 11% are from wind and solar production capacity
Source: NEE 2016 Annual Report
Source: NEE 2016 Annual Report

19. Business analysis
Post-election stock performance
Source: Bloomberg

20. Business analysis Key drivers Low energy prices
Investments in natural gas infrastructure
Source: Market Realist Website
Source: Bloomberg

21. Business analysis Key drivers
Current administration’s support of renewable energy policy incentives
PTC: based on electricity generated in first 10 years of commercial operation
ITC: portion of cost of facilities that are eligible for PTC
Source: NEE 2016 Annual Report
Source: NEE 2016 Annual Report

22. Business analysis Key drivers
Lower cost for wind facility installation
Source: American Wind Energy Association Website

23. Business analysis
Diversity in energy sources, business models, and strategies
Regulated and deregulated
Negotiation power; special programs
Source: NEE 2016 Annual Report
Source: NEE 2016 Annual Report

24. Business analysis Downsides and risks Acquisition of Oncor
Growing competition from roof-top solar panel
High valuation, sector PE around 18
Source: Consumer Reports Website
Source: Bloomberg

25. Financial analysis Revenue and earnings projection
Source: Bloomberg and Analyst estimates

26. Financial analysis
Peer analysis
Source: Bloomberg

27. Valuation DCF Valuation Sensitivity Analysis Source: Analyst estimates

28. Valuation
NEE, Utilities sector, and S&P500 5 year historical valuation ratios
PE ratio
Red: NEE, Yellow: Utilities sector (S5UTIL), White: S&P 500 (SPX), Light blue: NEE/S5UTIL, Dark blue: NEE/SPX

29. Valuation
NEE, Utilities sector, and S&P500 5 year historical valuation ratios
PB ratio
Red: NEE, Yellow: Utilities sector (S5UTIL), White: S&P 500 (SPX), Light blue: NEE/S5UTIL, Dark blue: NEE/SPX

30. Valuation
NEE, Utilities sector, and S&P500 5 year historical valuation ratios
PS ratio
Red: NEE, Yellow: Utilities sector (S5UTIL), White: S&P 500 (SPX), Light blue: NEE/S5UTIL, Dark blue: NEE/SPX

31. Valuation
NEE, Utilities sector, and S&P500 5 year historical valuation ratios
P/EBITDA ratio
Red: NEE, Yellow: Utilities sector (S5UTIL), White: S&P 500 (SPX), Light blue: NEE/S5UTIL, Dark blue: NEE/SPX

32. NEE Recommendation HOLD Interest rate hike
Value and growth
Contracted revenues and costs
Lower renewable energy cost
Unchanged government subsidies
Potential tax cut
Interest rate hike
Close to historical high valuation (High valuation for the market)

33. Conclusion
Potential companies to buy
Source: Bloomberg

34. Conclusion
Currently Underweight = 1.02% Calpine SIM Weight = 0.73% Calpine target price = $13.70 NextEra SIM Weight = 1.51% NextEra target price = $ BUY: Calpine 27bps

35. Appendix Calpine DCF Model

36. Appendix NextEra DCF Model