On Apr 10, we have issued an updated research report on
NRG Energy, Inc.
). 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.
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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
) unit Edison Mission Energy and the competitive retail electric
Dominion Resources, Inc.
). 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.
), which carries a Zacks Rank #1 (Strong Buy).