Interesting Opportunity With Genie Energy Ltd (GNE)

As it currently stands, investors who take advantage of the share swap stand to earn a return of at least 6 percent per year. This is because Genie’s share price has been stagnant or falling since the IDT Corporation (NYSE:IDT) spin-off that created the company. IDT spun off Genie in the fall of 2011.  Since then Genie has fallen 16% and IDT fell over 60%.  Should Genie’s fortunes reverse and cause its per-share price to rise, the exchange could become significantly less attractive.

In addition, the company’s reliance on medium-term debt facilities to fund its current activities is troubling. Although it currently appears unlikely that Genie will face bankruptcy before 2017, another home-market economic disruption like Hurricane Sandy could change this calculus. Investors who wish to take advantage of its ongoing exchange offer should be prepared for the remote but real possibility of a post-bankruptcy preferred-share haircut.

Long-term prospects and outlook

Although price manipulation is not the sole reason for the repeated extensions of its exchange offers, Genie appears to be using the swaps to prop up the sagging value of its common stock. This may be part of a long-term strategy to unlock value for CEO and majority-stakeholder Howard Jonas.

It is important to note that Genie’s stock declined precipitously during the interim between the first exchange offer’s cancellation and the second exchange offer’s initiation. From a high near $7.50 per share in mid-October, the company’s stock had declined by about 30 percent to $5.75 per share by mid-November. After the announcement of the new exchange offer, it had risen above $7 per share within a month. Should the company renew the exchange offer beyond the current February deadline, it could contribute to a momentary price spike from which agile investors could profit.

Although Genie Energy’s common stock is not particularly attractive, its ongoing exchange offer may be a boon to enterprising investors. Those who believe in the company’s long-term solvency would do well to take advantage of the offer before its expiration. Those who wish to play the stock for short-term gains should wait for a renewal of the exchange offer. Others may wish to remain on the sidelines for the time being.

The article Interesting Opportunity With This Stock originally appeared on Fool.com and is written by Mike Thiessen.

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