MIR - Mirant Corp - forward P/E of 13.00, under the industry average of 19.74

Mirant is using its size to generate outsized profits in the electricity market. The company is giving $4.6 billion back to shareholders in the form of stock repurchases. Mirant is trading at 13x forward earnings.

Full Analysis

Mirant Corporation (MIR) is a diversified electricity and natural gas company with 13 generating plants in California, Maryland, Massachusetts, New York and Virginia. The plants produce as much as 10,300 megawatts of electricity, enough to power about 10 million homes, for wholesale and large retail customers.

The company's strategy is to be located close to large metropolitan areas where demand for energy is high such as San Francisco, Washington, D.C., Boston and New York City.

Mirant's plants run on different fuels; either oil, gas or coal. Half of the company's plants can be switched from one fuel type to another, enabling Mirant to better control costs as fuel prices change.

On Feb 29, the company reported fourth-quarter and full-year earnings. Mirant reported net income of $805 million for 2007, or $2.91 per share, compared to net income of $309 million in 2006, or $1.04 per share. For the fourth-quarter, the company increased net income by 60% to $191 million, or 72 cents per share, compared to $94 million, or 35 cents per share, in 2006.

Mirant actually missed estimates for the fourth quarter by six cents. Analysts expected 78 cents per share. But Mirant has surprised on estimates three out of the last four quarters by an average of 35.77%.

The company reported that the fourth-quarter net income increase was the result of higher energy prices and capacity revenues in the Mid-Atlantic region and lower net interest because of increased cash balance from dispositions completed earlier in the year which was offset by lower realized value from hedging.

Returning $4.6 Billion to Shareholders

The company is in the midst of a huge return of cash to its shareholders. On Nov 9, 2007, MIR announced it would return a total of $4.6 billion, with the first stage consisting of a $1 billion accelerated share repurchase program.

"We have made good progress on our previously announced share repurchase program and through February 25, 2008, Mirant has purchased $1.602 billion of stock, reducing basic shares outstanding to just under 214 million," said Edward R. Muller, chairman and chief executive officer.

"We have decided to return the remaining $2.6 billion through open market purchases, but will continue to evaluate the most efficient method to return the cash to stockholders," he said.

As of Dec 31, 2007, the company had cash and cash equivalents of $4.961 billion and total outstanding debt of $3.095 billion.

Raising 2008 Guidance

On Feb 29, Mirant raised its 2008 adjusted EBITDA guidance to $925 million from $907 million. The company also provided initial 2009 adjusted EBITDA guidance of $1.011 billion.

First Quarter and 2008 Consensus Estimates Rise

Brokerage estimates for the first quarter and the full year have been rising over the last 30 days. Consensus estimates for the first quarter are up four cents to 71 cents from 67 cents per share. For the full year, estimates rose two cents to $3.02 from $3.00 per share.

The company, a Zacks #1 Rank (Strong Buy), has a forward P/E of 13.00, under the industry average of 19.74. Its price-to-book is 1.92. Analysts expect earnings growth of 16.5% in 2008.

Content Courtesy: Zacks Investment Research

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