Great Plains Energy Just Warming Upadmin
Great Plains Energy, formerly Kansas City Power & Light electric utility, weathered a white elephant nuclear power plant built in the surplus years of the 70′s and 80′s, increased regulation after the Three Mile Island accident and a recent battle against a hostile takeover.
GXP InvestmentIn 2003, KCP&L got new management, a new name and a new business model, then set about repairing its image with regulators, consumers and investors. A long, strong marketing campaign helped counteract a big rate jump planned to fund a new coal plant. To sweeten the pill, GXP promised 450 megawatts of coal fired power, reduced emissions, a 100 megawatt wind farm and increased efficiency to handle demand. As a result, GXP won regulatory approval for rate hikes, enabling plant construction through cash flow, not debt.
GXP announced 20% plant cost overruns although its wind farm was finished in September on time and on budget. Still, shares have gained 17% since summer ’05 and are trading at a P/E of 15.9, less than the industry average of 17.7. With a 5.2% dividend and if they beat the Street’s $2.01 per share projections, GXP could garner 15% returns in ’07. CEO Michael Chesser says GXP plans to grow earnings at 2%-4% a year. Bottom Line: With GXP’s turnaround, shares could return 15% over the next year even after a 17% rise since last summer.