Reliant Energy plunges on outlook cut

Its stock lost nearly a third of its value, dropping 30 percent, or $3.02, to $7.06 in morning trading, after slumping to a 5-year low of $4.69 earlier in the session. The shares have traded as high as $28.74 in the past year.

Monday afternoon, Reliant lowered its retail contribution margin outlook for 2008 by $300 million to $350 million as a result of Ike, including reduced sales volumes, the sale of excess supply during this time, updates to retail pricing assumptions and increased storm-related operating costs.

The company estimates that its outlook for 2008 open wholesale contribution margin will be approximately $480 million lower than its previous outlook, with results hurt by mild weather and reduced off-peak prices.

Reliant has arranged for $1 billion in additional capital consisting of a commitment for a $650 million term loan from GS Loan Partners and an agreement to issue $350 million of convertible preferred stock to the energy private equity firm First Reserve Corp.

Analyst Gordon Howald of Calyon Securities on Tuesday cut his rating on the company to "Neutral" from "Add" and slashed his price target to $10 from $22. He also cut his earnings guidance for the year to 23 cents per share from 64 cents. Analysts polled by Thomson Reuters expect earnings of $1.03 per share.

He said earnings visibility is poor, reflecting the company's new financing along with lower commodity prices.

Meanwhile, Deutsche Bank Securities Inc. analyst John Kiani maintained a "Hold" rating on the stock, but cut his price target to $11 from $19.

"This obviously eliminates the possibility of a stock buyback some had hoped for and may cause the market to wonder if $1 billion is enough," he wrote in a research note.

Reliant Energy has approximately 1.8 million retail electricity customers primarily in Texas. It also serves commercial, industrial, governmental and institutional customers in Delaware, Illinois, Maryland, New Jersey, New York, Pennsylvania and Washington, D.C.