Earnings preview: Dynegy

OVERVIEW: Through its subsidiaries, Dynegy produces and sells electric energy, capacity and ancillary services.

During the quarter, a Dynegy subsidiary completed the sale of its Rolling Hills Power Generation Facility, a peaking plant in Wilkesville, Ohio, to a company managed by Tenaska Capital Management LLC for $368 million. Dynegy expects to record a gain of approximately $50 million, subject to adjustments for working capital and other items, in the quarter.

BY THE NUMBERS: Analysts polled by Thomson Reuters on average expect earnings of 10 cents per share on revenue of $1.2 billion.

ANALYST TAKE: Angie Storozynski of Macquarie Research in September cut her outlook for earnings before interest, tax, depreciation and amortization to $937 million this year and $1.2 billion next year from $963 million this year and $1.3 billion next year.

"We believe Dynegy's PRB-fired coal plants in the Midwest with below-market coal hedges are well positioned for eventual margin expansion, especially as Eastern coal prices remain strong," she wrote. "However, a sharp economic slowdown in the Midwest translates into sluggish growth in power sales, leaving regional utilities with a slack power-generation capacity."

Storozynski lowered her 12-month price target to $7 from $7.50, but she set an "Outperform" rating from "Neutral" on valuation.

STOCK PERFORMANCE: Like other energy companies, Dynegy's stock collapsed during the quarter. After hitting a quarterly high of $8.90 on July 1, the shares closed at $3.58 on Sept. 30 and have continued to fall, dropping 32 cents, or nearly 10 percent, $3.04 in midday trading Wednesday.