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Calpine Corporation (CPN): Luminus Management is Bullish; Should you Follow?

Jonathan Barrett and Paul Segal‘s Luminus Management has raised its activist stake in Calpine Corporation (NYSE:CPN). As a new filing with the US Securities and Exchange Commission showed, Calpine Corporation owns some 30.84 million shares of the company, which represent 7.7% of the company’s common stock. In a previous filing, the investor disclosed holding around 27.99 million shares, equal to 6.6% of the company. Luminus also said that it has increased its position in Calpine Corporation in order to reallign its position within its equity portfolio.

Calpine Corporation (NYSE:CPN)

Luminus Management is a New York-based hedge fund that was founded in 2002 and manages an equity portfolio worth over $2.6 billion, which is primarily focused on the utilities sector. The investment strategy which involves an orientation towards utilities stock have helped the fund to perform nicely so far, with the sector gaining around 15% year-to-date and posting solid returns over the last years. The majority of the fund’s top holdings have risen over the last several quarters. The largest stake is represented by Exelon Corporation (NYSE:EXC), which advanced by over 27% since the beginning of the year. Duke Energy Corp (NYSE:DUK) and FirstEnergy Corp. (NYSE:FE) posted gains of 14.5% and 5.8% year-to-date respectively.

Calpine Corporation (NYSE:CPN) is also one of the top long positions in Luminus Management’s equity portfolio, being the second-largest in terms of value at the end of the second quarter. Luminus have been a long-term shareholder of Calpine; it added the company to its equity portfolio and over the next years it has been increasing or decreasing its stake. In the meantime, Calpine gained around 10% since March 2008, although in the last five years the stock surged by around 73% and since the beginning of the year it appreciated by around 7%.

Aside from Luminus, another investor that has been interested in Calpine Corporation (NYSE:CPN) is Brahman Capital, which at the beginning of October boosted its passive stake by 58% to 21 million shares, equal to 5.24% of the company. Lee Ainslie‘s Maverick Capital is another shareholder of the company, which owns some 10.1 million shares as of the end of June, although the fund reduced its position by 10% on the quarter.

Looking from the financial standpoint, Calpine Corporation (NYSE:CPN) represents an investment with some perspective. The company has been posting constant increases in revenue over the last quarters. For the second quarter, the revenue grew to $1.94 billion from $1.57 billion a year ago. The EBITDA of the company grew to approximately $483 million from $122 million. Moreover, the stock of Calpine trails a P/E of 27.40, below the industry average of 39.00 and it is priced relatively cheaper compared to its peers among mid-cap electrical utility stocks.

With investors bullish on Calpine Corporation (NYSE:CPN) and the utilities sector overall poised to grow, the company is worth some further research. Since we know that following the activity of larger investors might provide some insights to retail inverstors, the bullish activity around Calpine Corporation should not go under the radars.

Disclosure: none

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