Enron reported fourth-quarter results today. The company's revenues rose 270%, and it easily beat Wall Street's consensus estimate. Enron's wholesale business performed well again, and the first full year of operation for its online marketplace was solid. Enron has expanded itself through innovation and good management. Today's results underscore that point yet again, though at its current valuation, investors are paying dearly for it.
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Pinning down everything Houston-based Enron (NYSE: ENE) does is challenging -- it's now much more than the natural gas pipeline operator it once was. The company has positioned itself as a market maker for both energy and non-energy commodities -- but the old-line company has moved into the virtual world, too. For instance, Enron now provides an online market for the buying and selling of natural gas, coal, crude oil, and even bandwidth. The company also provides high-speed Internet access through its own fiber-optic network, in addition to selling that bandwidth as a commodity. The mix seems to be working: Enron's latest results demonstrate again why this innovative company continues to excel. Revenues for Enron's fourth quarter were up about 270% to $40.8 billion from the year-ago quarter's $11 billion. Driving most of the revenue was Enron's wholesale services business, and its natural gas business in particular. Enron sells energy and other commodities to firms and providers who need large amounts of them. The company benefited from the energy market's volatile prices over the last several months and revenues from the wholesale business improved almost fourfold. Enron has also started making markets for paper and pulp, and those are already returning value for the wholesale business. After-tax charge and gain Enron's results also include an after-tax gain of $39 million relating to an issuance of stock from New Power Holdings. All in all, Enron incurred a one-time charge for the quarter of $287 million. Including the charge, Enron earned $60 million, or $0.05 a share. It earned $259 million , or $0.31 a share, in the previous fourth quarter. Excluding the adjustments, Enron enjoyed income from operations for the quarter of $347 million, or $0.41 a diluted share. Enron easily beat the Street's consensus estimate of $0.35. Enron wasn't dramatically affected by the ongoing power crisis in California, since the company doesn't own any assets there that generate electricity. Further, the company doesn't expect California to impact its earnings significantly in the coming fiscal year, since it is mainly a market maker in many commodities, both energy-related and not. Enron'e online and broadband services Enron's broadband services continue to grow, too, but are still a tiny part of Enron's total operations. Enron lost $32 million in income before interest and taxes on its broadband services division. The company isn't expecting the broadband division to become profitable until 2003, as it spends money to build out the infrastructure. Enron's broadband division did deliver 71% more capacity this quarter than it did during the prior quarter. P/E worth it? Enron's P/E is currently about 51, while the utility sector's is 24, according to Market Guide. Competitors Duke Energy (NYSE: DUK) and Williams Companies (NYSE: WMB) have much lower P/Es than Enron, at 17 and 26, respectively. At Enron's current price, investors are paying extra for Enron's innovation, execution, and dependable management.
Enron's earnings results include an after-tax one-time charge of $326 million for its part of asset impairments from Azurix (NYSE: AZX). Enron helped form Azurix in 1998, and the company was supposed to revolutionize the global water business upon its deregulation like Enron has done for the energy business. Those plans never panned out as hoped, though, and last year Enron offered to take Azurix private. Azurix's board approved the offer, and shareholders are scheduled to vote on it in February.
The online marketplace run by Enron for the buying and selling of some 1,200 wholesale commodities completed its first full year of operation with the close of this quarter. For the year, the service completed 548,000 transactions for 3,000 customers, and is probably helping to boost overall wholesale results.
For Enron and its investors, this quarter should be very satisfying. The company continues to do what it does best -- make markets for commodities of all stripes. Enron has set itself apart from its peers with services like its online marketplace, and though it's not a huge part of results yet, with its broadband services division. The question is whether or not Enron has set itself apart enough to deserve its premium price-to-earnings ratio.
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