-----Original Message-----
From: 	Courtney Cleman <Courtney.Cleman@morganstanley.com>@ENRON  
Sent:	Friday, September 28, 2001 7:15 AM
To:	kkonolig@ms.com
Subject:	EPS Visibility Has Blurred, but Not Much has Changed/Kit Konolige/MS  Eletric Utilities Research

Morgan Stanley Electric Utilities Research

Kit Konolige  (212) 761-6237
David Reynolds  (212) 761-6078
Carrie Stevens  (212) 761-6183
Chris Bezler  (212) 761-4487

EPS Visibility Has Blurred, but Not Much has Changed

* 3 negative pre-announcements in 2 days blurs EPS visibility
We are examining where the weakness has stemmed from - (1)
smaller, regionally-focused businesses (EXC) and (2) aggressive
power price forecasts (AES & RRI).
* Some companies have reaffirmed '01 and even '02 EPS guidance
DUK, ETR, ILA, MIR, NRG, PPL & SRE have reaffirmed 2001
EPS guidance. ETR and MIR have also reaffirmed 2002 EPS
guidance. Informally reaffirmed - CPN, D, MIR, PEG & TXU.
* Trading, CA generation and peaking plant income appear most volatile
Inside we try to identify stocks with exposure to these businesses
and quantify what percentage of our estimates they represent.
* Believe EPS downside risk should be limited to 15%
Both CEG and RRI missed estimates by roughly this amount.
RRI also reduced its growth rate to 15% - we have always
assumed long-term growth rates would come down to 15-20%.
* Reduced EPS expectations are already priced into stocks
Group multiple is roughly 9X, with some stocks at 7X P/E
multiples - implying 0.4-0.6X PEG ratios. This valuation
appears too heavily discounted for 15% EPS downside risk.
 - 112414.pdf 
 - Courtney.Cleman.vcf