CPN 1Q2016 Earnings Note

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Market Price (4/29/2016): $15.78 ; ST-Target: $21/share; NIV: $56/share

CPN: A Story Beyond Rising Tides Lift All Boats, whose time is here

CPN’s story is beyond macro effect of commodity prices and economy. It’s also about future of energy, which CPN represents. We agree accelerated closure of coal-fired generation is coming, industry is moving more towards reliance on renewable energy, and improving natural gas prices are all tailwinds for ST-to-MT gain for CPN. Credit metrics are solid with bonds trading at par. Strategically there’s little to criticize, but we’d like CPN to disavow share buybacks. NT commodity prices are starting to show some upward momentum, which we believe will largely continue. However, over ST-to-MT, we believe importance of heat rate will likely start to dominate IPP valuations. Environmental issues that continue to plague others present opportunities for CPN. We’d like to see CPN develop Glass Mountain Geothermal. We look for expansion of CPN’s retail business. Sale of South Point Power is said to be accretive; we expect several more similar divestitures to come.

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