Balanced View on NRG Energy, Inc. - Analyst Blog


On Apr 10, we have issued an updated research report on NRG Energy, Inc. ( NRG ). The U.S. utility firm continues to pursue strategic acquisitions to scale up its production volumes and increase market coverage. We also appreciate NRG Energy's steady effort towards expansion of its renewable properties. However, we are concerned about stringent regulations and disruption in fuel supply, which may confront the company's future performance.

NRG Energy, a Zacks Rank #1 (Strong Buy) stock, reported unfavorable performance in fourth-quarter and full-year 2013. Quarterly earnings missed the Zacks Consensus Estimate. On a year-over-year basis, earnings decreased 53.3%. For 2013, the company reported a loss primarily due to higher total operating costs and expenses.

We view NRG Energy as an organization, which strongly follows inorganic growth strategy to expand its scale of operations. Recently, the company completed several acquisitions including Edison International 's ( EIX ) unit Edison Mission Energy and the competitive retail electric business of Dominion Resources, Inc. ( D ). In addition, the company also acquired Roof Diagnostics Solar, a U.S. solar sales and installation provider, in Mar 2014. The transactions will enable the company to increase its power generating capacity and retail customer counts while strengthening renewable portfolio.

Apart from completing several acquisitions, NRG Energy also completed the development of the gas turbine combined-cycle generating facility at its El Segundo Power Generating Station. The company plans to invest around $1.3 billion in 2014 to expand its existing operations.

As NRG Energy continues to experience customer additions, internal and inorganic expansion ventures will help the company to meet the increasing utility demand.

NRG Energy continues to have a stable liquidity position, including cash balance of $2.25 billion as of Dec 31, 2013 and net cash provided by operating activities of $1.27 billion in 2013. Apart from investing in growth projects, a strong financial position supports the company's practice of steady dividend payments. During fourth-quarter 2013 earnings call, the company increased its annual dividend by 16.7% to 56 cents per share from the previous pay out.

However, NRG Energy's operations are subject to the federal, state, and local regulations primarily related to the emission of greenhouse gas and carbon dioxide. Changes in environmental guidelines could impact the company's financial performance.

Key Picks from the Sector

Another stock worth considering in the utility industry is Public Service Enterprise Group Inc. ( PEG ), which carries a Zacks Rank #1 (Strong Buy).

DOMINION RES VA (D): Free Stock Analysis Report

EDISON INTL (EIX): Free Stock Analysis Report

NRG ENERGY INC (NRG): Free Stock Analysis Report

PUBLIC SV ENTRP (PEG): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: D , EIX , NRG , PEG

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