We have maintained our Neutral recommendation on
NRG Energy Inc.
) primarily owing to the company's unexpected outages, fuel price
volatility, pressure of regulatory compliances and failure to
acquire high quality contracts. We believe these factors, to some
extent, will influence the company's future performance.
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NRG ENERGY INC (NRG): Free Stock Analysis
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As far as NRG Energy's positive catalysts are concerned, the
company's solar portfolio continues to gain momentum and we
believe it to be an important future value driver. In addition,
NRG Energy's strong liquidity position will provide a stable
financial profile to pursue aggressive hedging strategy.
The results of the company in the recently concluded
third-quarter 2012 were not impressive. NRG Energy's
third-quarter 2012 net loss was way below the Zacks Consensus
Estimate while being narrower than the year-ago loss.
Year-over-year improvement in earnings was primarily driven by a
decrease in total operating costs. The company's quarterly
revenue was lower than the Zacks Consensus Estimate and year-ago
figures. The disappointing result was primarily attributable to a
$300 million decrease in net mark-to-market results due to
economic hedging activities.
NRG Energy is an organization with a diversified portfolio of
electric generation facilities in terms of geography, fuel type
and dispatch levels, which in turn, helps to ease risks for fuel
price volatility and market demand cycles. In addition, the
company follows a steady growth strategy, which particularly
emphasizes on innovation and maintenance of its resource
portfolio. We believe that NRG Energy's smart energy products,
and efficient and reliable value added services are expected to
meet higher customer demand in the future.
We know that NRG Energy's operations largely depend on its
coal-fired base-load power plants to derive a significant part of
its domestic revenues. As a consequence, the company remains
prone to several risks on the environmental front due to its
heavy coal exposure.
NRG Energy's strong cash balance of $1.61 billion as of September
30, 2012 enables it to follow steady organic and inorganic growth
strategies. We believe that the company's high profile GenOn
acquisition will add some momentum to its financial prospects. In
addition, its three major solar projects - Agua Caliente,
California Valley Solar Ranch and Ivanpah - are progressing at a
quicker pace. We believe timely implementation of these programs
would benefit its near-term financial results.
NRG Energy depends heavily on other parties for delivering
wholesale power to its customers. Lack of proper modernization of
transmission infrastructures and restrictive transmission price
regulations could lead to a decline in the company's availability
of adequate transmission capacity. This, in turn, will hamper
customer services thus adding to the company's costs and
resulting in margin contraction.
NRG Energy Inc. currently has short-term Zacks #3 Rank (Hold
Princeton, New Jersey-based NRG Energy Inc. is a wholesale power
generation company engaged in the ownership, development,
construction, and operation of power generation facilities. With
a market capitalization of $4.51 billion, the company has 5,193
full-time employees and competes with
The AES Corporation