David Einhorn (Trades, Portfolio), founder of Greenlight Capital, purchased a 5,660,000-stake in Calpine Corp. (CPN, Financial) in the second quarter. The trade had a 1.53% impact on Einhorn’s portfolio.
Since Einhorn purchased his stake in Calpine, the company’s market price has tumbled by an estimated 16%.
Calpine is America’s largest generator of electricity from natural gas and geothermal resources. The company was founded in 1984, and it specializes in developing, constructing, owning and operating power plants that use advanced technologies to generate power.
The company has 84 power plants that are in operation or are under construction. Its 84 power plants represents more than 27,000 megawatts of generation capacity which is enough electricity to power 21 million homes. Calpine currently operates its business and serves customers in 21 states as well as in Canada.
Calpine has a market cap of $4.57 billion, an enterprise value of $16.26 billion, a price-book (P/B) ratio of 1.58, a price-sales (P/S) ratio of 0.73 and a quick ratio of 1.08.
According to GuruFocus Calpine has a 3 of 10 financial strength rating, with a cash-debt ratio of 0.02 ranking it beneath 93% of the 154 companies in the global utilities-independent power producers industry.
The company has an Altman Z-Score of 0.17, indicating that is in the distress zone, and it's in danger of the possibility of filing for bankruptcy in the next two years. The company also has a 7 of 10 profitability and growth rating with an operating margin of 10.24%, an ROE of -0.03%, an ROA of -0.01% and revenue growth (three-year) of 15.10%.
Einhorn may have decided to purchase a stake in Calpine because the company is capable of producing more than 27,000 megawatts of electricity, it's expanding its operations, it has reported solid revenue-growth over the previous three years, and the company is trading at a five-year low in price.
Below is a Peter Lynch chart that shows Calpine corp is trading above its intrinsic value.
Einhorn is a Demarest, New Jersey native who founded Greenlight capital in 1996 with $900,000 after his wife gave him the “green light” to go ahead with his idea to found his own hedge fund. Today, Greenlight Capital owns 46 stocks with a total value of $5.451 billion.
Disclosure:Â Author does not own any shares in this company.
Start a free seven-day trial of Premium Membership to GuruFocus.
