GUNS, FYI on EP. They're starting to look like DYN.
It seems that management at El Paso (EP) has entered the proverbial race against the clock to keep its head above water. After already announcing intention to exit its energy trading business in 2002, the company yesterday said it would sell off other non-core assets including its liquefied natural gas operations in an attempt to improve its financial state.
If you take a look at the amount of long-term debt the company currently services on its balance sheet, combined with expectations of lower-than-consensus '03 earnings, you'll get an idea of why management is in a rush to pay off creditors.
Unfortunately, shareholders—who have seen the stock tumble from the mid-$40s to single digits—will also have to chip in; they'll be receiving a paltry 16 cent dividend per share this year, compared to 88 cents a year ago.
There was little in the way of positive reaction from the analyst community following El Paso's announcement. Credit Lyonnais Securities said it agreed with the company's moves, but nonetheless downgraded the stock to 'reduce,' saying it should have acted sooner. Banc of America said the announcement adds more question marks to El Paso's outlook and cautioned investors about trying to catch a falling knife.
CIBC World Markets noted that the company's actions would enable it to become cash flow neutral, which would mean that all proceeds from asset sales could go to direct debt pay-down.
The bottom line on El Paso is this: do you believe it will be able to execute its capital maneuvers quickly and effectively enough to help it avoid a liquidity crunch? The risk/reward scenario on the stock is extremely high, and conservative investors certainly need not apply.
For those who understand no explanation is needed, ...For those who don't none will.
