There are other concerns: Despite the fact that Enron has been talking about reducing its debt, in the first nine months of 2000 its debt went up substantially. asks Ralph Pellecchia, Fitch's credit analyst, in response to the same question. Actually, analysts dont seem to have a clue whats in Assets and Investments or, more to the point, what sort of earnings it will generate. The bullish scenario for Enron is that the proceeds from those sales will reduce debt, and as earnings from new businesses kick in, the companys return on invested capital will shoot upward. The fact that Enron's cash flow this year was meager, at least when compared with earnings, was partly a result of its wholesale business. But Enron has been steadily selling off its old-economy iron and steel assets and expanding into new areas. Indeed, First Call says that 13 of Enron's 18 analysts rate the stock a buy. We are concerned they are liquidating their asset base and booking it as recurring revenue, especially in Latin America, says analyst Andre Meade at Commerzbankwho has a hold rating on the stock. Make money & make a difference, banishing work unhappiness - Use the fast-start wealth strategies of the new tech-rich - Maximise . Before the congressional hearings, before Arthur Andersen was indicted, before the SEC and the DOJ got involved, FORTUNE's Bethany McLean asked whether a company that traded at 55 times earnings should be so opaque. Skilling has told analysts that its new businesses will generate a return on invested capital of about 25% over the long run. In any event, some analysts seem to like the fact that Enron has some discretion over the results it reports in this area. You have to favor to in this make public English Hours (Esprios Classics) - Henry James 2021-06-15 English Hours is a book of travel writing by Henry James published in 1905. Many went sour in the early months of 2001 as Enrons stock price and debt rating imploded because of loss of investor and creditor trust. A WarnerMedia Company. To promote and elevate the standards of journalism, 2023 by the President and Fellows of Harvard College, Summer 2004: Journalists Trade Introduction. Enron is no black box, says Goldmans Fleischer. LinkedIn has officially entered its cringe era, and its working. The company also blames short-sellers for talking down Enron. When vital information isnt disclosed, journalists need to say, I dont get it. And do so in print and on the air. Enron has told analysts that it plans to sell between $2 billion and $4 billion of assets over the next 12 months. Both Skilling, who describes Enron's wholesale business as "very simple to model," and Fastow note that the growth in Enron's profitability tracks the growth in its volumes almost perfectly. Jim Foster of Platts energy publications is another observer who smelled something funny about Enron long before the rest of us figured it out. Enron vehemently disagrees with any characterization of its business as black box-like. In a probing U.S. News & World Report story in June, Anne Kates Smith asked whether Enron was overpriced. Thats more than 2 1/2 times the multiple of a competitor like Duke Energy (DUK), more than twice that of the S&P 500, and about on a par with new-economy sex symbol Cisco Systems (CSCO). The off-balance sheet arrangements, (2). By almost every measure, the company turned in a virtuoso performance: Earnings increased 25%, and revenues more than doubled, to over $100 billion. Even a modest market share and thin margins provide excellent potential here, writes Ed Tirello, a Deutsche Bank Alex. Perhaps most promising is its Enron Energy Services business, which manages all the energy needs of big commercial and industrial companies. "That's like calling Michael Jordan a black box just because you don't know what he's going to score every quarter." The MTM calculations are done daily after the trading hours, based on the closing price for the day. In 1999 its cash flow from operations fell from $1.6 billion the previous year to $1.2 billion. We don't want to tell anyone where we're making money.". Analyzing Enron can be deeply frustrating. Enron took great pains to conceal what it was doing and create illusions of success in the quarterly and annual securities re ports it issued. Do Not Sell. Hard, too, for Enrons highly compensated outside directors charged with protecting shareholders interests. How exactly does Enron make its money? writer Bethany McLean asked. Thats like calling Michael Jordan a black box just because you dont know what hes going to score every quarter. Then again, Jordan never had to promise to hit a certain number of shots in order to please investors. In 2006, he was convicted of federal felony charges relating to Enrons collapse and eventually sentenced to 24 years in prison. But the fact that part of Goldmans business is inherently risky and impenetrable to outsiders is precisely the reason that Goldman, despite its powerful franchise, trades at 17 times trailing earningsor less than one-third of Enrons P/E. The bullish scenario for Enron is that the proceeds from those sales will reduce debt, and as earnings from new businesses kick in, the company's return on invested capital will shoot upward. And we need to produce fewer lists of The Ten Most Innovative Companies or The Ten Toughest CEOs and Whos Who in Risk Management or The 100 Best Companies to Work For. We would serve readers and investors better with lists like: Ten Incomprehensible Financial Reports or A Dozen Companies That Wont Say How They Make Their Money.. This requires big capital expenditures. We don't want to tell anyone where we're making money.". In the first nine months of 2000, the company generated just $100 million in cash. Regardless of their size, news staffs can make choices and set priorities for investing in in-depth coverage on companies and business trends that matter most. Wall Street is a far less glitzy place, but there's still such a thing as an "It Stock." Hints and clues were there, however. Both Skilling, who describes Enron's wholesale business as "very simple to model," and Fastow note that the growth in Enron's profitability tracks the growth in its volumes almost perfectly. It sounds wonderful, said King, but I dont see it. King recalls that Skilling replied good-naturedly, I guess thats right., In this case, Skilling was plying his charm. Cable News Network. Case Number. In any event, some analysts seem to like the fact that Enron has some discretion over the results it reports in this area. Cable News Network. By almost every measure, the company turned in a virtuoso performance: Earnings increased 25%, and revenues more than doubled, to over $100 billion. As stock in the company dropped from more than $80 per share to mere pennies, tens of thousands of people saw their pension and investment accounts depleted or destroyed. On Nov. 28, 2001, credit rating agencies reduced Enron's credit rating to junk status, effectively solidifying the company's path to bankruptcy. King listened as Skilling described Enron as a new hybrid company that would earn dot-com stock prices by taking its energy trading expertise into widely disparate fields, creating new commodity markets for Internet transmission, water supply, advertising space, and other services. All rights reserved. In written reports, Morgan Stanley chalked up the decline to the poor performance of Enrons significant number of investments in telecom stocks; Dain Rauscher Wessels blamed it on a lack of asset sales. We dont want to tell anyone where were making money.. Act. "This is an enormous earnings vehicle, which can often be called upon when and if market conditions require," notes UBS Warburg analyst Ron Barone. Along with broadband, Enron has ambitious plans to create big businesses trading a huge number of other commodities, from pulp and paper to data storage to advertising time and space. . Former Enron Corp. employees who lost millions of dollars in retirement money in the companys stunning collapse would get $85 million in a partial settlement of their lawsuit, attorneys said yesterday. John is a devoted husband and father of two. NEW YORK (FORTUNE) -- In Hollywood parlance, the "It Girl" is someone who commands the spotlight at any given moment -- you know, like Jennifer Lopez or Kate Hudson. In Enron's view, its core business--where the company says it makes most of its money--is delivering a physical commodity, something a Goldman Sachs doesn't do. Indeed, people commonly refer to the company as "the Goldman Sachs of energy trading." Whats clear is that Enron isnt the company it was a decade ago. The two have been convicted of fraud and conspiracy in connection with the energy-trading giants collapse. Of course everything could go swimmingly. Thats about the same rate of return you get on far less risky U.S. Treasuries. That's why, he says, Enron's cash flow will be up dramatically, while debt will be "way down, way down" when the company publishes its full year-end results, which are due out soon. 16. Many of those workers were also Enron shareholders. The book collected various essays James had written on England over a period of more than thirty years, beginning in . For instance, Enron says the global market for broadband and storage services will expand from $155 billion in 2001 to somewhere around $383 billion in 2004. Most stock quote data provided by BATS. Analytical cookies are used to understand how visitors interact with the website. But $22 billion seems like a high valuation for a business that reported $408 million of revenues and $60 million of losses in 2000. But it was not until mid-October, after Enrons carefully hedged admissions of several unexpected and ill-explained financial setbacks, that the mainstream press began to take notice. But the fact that part of Goldman's business is inherently risky and impenetrable to outsiders is precisely the reason that Goldman, despite its powerful franchise, trades at 17 times trailing earnings--or less than one-third of Enron's P/E. In its 1999 annual report the company wrote that "the use of financial instruments by Enron's businesses may expose Enron to market and credit risks resulting from adverse changes in commodity and equity prices, interest rates, and foreign exchange rates.". Wall Street is a far less glitzy place, but theres still such a thing as an It Stock. Right now, that title belongs to Enron, the Houston energy giant. By October, other reporters were digging and more devastating disclosures followed. It's in a bunch of complex businesses. For instance, Enron says the global market for broadband and storage services will expand from $155 billion in 2001 to somewhere around $383 billion in 2004. The company was the center of the first . Thats why, he says, Enrons cash flow will be up dramatically, while debt will be way down, way down when the company publishes its full year-end results, which are due out soon. Trying to get a good grip on Enrons risk profile is challenging, says Shipman. As Mr. Kirkland said, Ms. McLean's report ''was. And the numbers that Enron does present are often extremely complicated. At the least, these sorts of hard-to-predict earnings are usually assigned a lower multiple. Within a year Enron was facing humiliation and bankruptcy, the largest in US history, which caused Americans to lose faith in a system that rewarded top insiders with millions of dollars, while small investors lost everything. In 2000, 95% of its revenues and more than 80% of its operating profits came from "wholesale energy operations and services." Enron vehemently disagrees with any characterization of its business as black box-like. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. It also dismisses any comparison to a securities firm. And the inability to get behind the numbers combined with ever higher expectations for the company may increase the chance of a nasty surprise. Enron now trades at roughly 55 times trailing earnings. And the inability to get behind the numbers combined with ever higher expectations for the company may increase the chance of a nasty surprise. Enron has an even higher opinion of itself. The problem, as we know from innumerable failed dot-coms, is that the y enormous market doesn't always materialize on schedule. In 2000, 95% of its revenues and more than 80% of its operating profits came from wholesale energy operations and services. This business, which Enron pioneered, is usually described in vague, grandiose terms like the financialization of energybut also, more simply, as buying and selling gas and electricity. In fact, Enrons view is that it can create a market for just about anything; as if to underscore that point, the company announced last year that it would begin trading excess broadband capacity. "Even a modest market share and thin margins provide excellent potential here," writes Ed Tirello, a Deutsche Bank Alex. But Enron has been steadily selling off its old-economy iron and steel assets and expanding into new areas. "Do you have a year?" In many ways, Enron was an innovator, but the press needs fewer pop designations like that one and better reporting on what the innovations are and whether they are working. This became the same technique reporters on the Enron story began using six months later. (In fact, cash flow would have been negative if not for the $410 million in tax breaks it received from employees' exercising their options.). Analyzing Enron can be deeply frustrating. John Groove has over 20 years of experience specializing in divorce and family law. 2023 Fortune Media IP Limited. Shares of Enron stock reached their highest price on August 23rd, 2000 when shares reached a price of $90.75! That's good, because Enron will need plenty of cash to fund its new, high-cost initiatives: namely, the high-cost buildout of its broadband operations. The role of mark-to-market, and (3). The fact that Enrons cash flow this year was meager, at least when compared with earnings, was partly a result of its wholesale business. But describing what Enron does isnt easy, because what it does is mind-numbingly complex. Both Skilling, who describes Enrons wholesale business as very simple to model, and Fastow note that the growth in Enrons profitability tracks the growth in its volumes almost perfectly. Another hedge fund operator with doubts about Enron went looking more than a year ago for firsthand information. Bethany Lee McLean (born December 12, 1970) is an American journalist and contributing editor for Vanity Fair magazine. The energy company reported increasing profits, quarter after quarter. All rights reserved. "We are concerned they are liquidating their asset base and booking it as recurring revenue, especially in Latin America," says analyst Andre Meade at Commerzbank--who has a hold rating on the stock. The high share price gave Enron a market cap of about $70 billion, enough to make it the 7th largest publicly traded company. To skeptics, the lack of clarity raises a red flag about Enron's pricey stock. Offers may be subject to change without notice. 2021 Do NOT follow this link or you will be banned from the site! Both Enron and some of the analysts who cover it think it already is. Enron was founded in 1985 by Kenneth Lay in the merger of two natural-gas-transmission companies, Houston Natural Gas Corporation and InterNorth, Inc.; the merged company, HNG InterNorth, was renamed Enron in 1986. The collapse of Enron, which held more than $60 billion in assets, involved one of the biggest bankruptcy filings in the history of . Party Name. While Wall Street firms routinely earn north of 20% returns on their equity--Goldman's ROE last year was 27%--Enron's rate for the 12 months ended in September (the last period for which balance sheet information is available) was 13%. 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