ENE--Downgrade to 3S from 1S; Credit Concerns Need To Be Addressed ,
 ENE--Downgrade to 3S from 1S; Credit Concerns Need To Be Addressed

*	Lower rating to 3S (Neutral, Speculative) from 1S (Buy, Speculative)
*	Enron is the industry dominant player in the energy merchant
industry; their business performance remains intact and should continue
unimpeded if current concerns over credit and liquidity are addressed.  We
believe this is the most likely outcome.
*	However, until management completely clarifies these issues,
particularly the use of off-balance sheet financing, we think growing credit
concerns could put increasing strain on Enron's commercial relationships.
Concern over a now higher probability "worst-case" outcome drives our 3S
rating.
*	Enron's shares represent a "binary" outcome to investors.  We see
low-end valuation of $10 (1x our estimate of book value based on known
off-balance sheet financings), with upside potential to $24 (2.4x bv).  The
expectation of near-term volatility in share price also justifies our
"Speculative" risk rating.

 <<ENE Downgrade 10-26-01.pdf>>  <<ENE Downgrade 10-26-01.doc>> 

                                                  
Raymond C. Niles
Power/Natural Gas Research
Salomon Smith Barney
(212) 816-2807
ray.niles@ssmb.com

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