We have maintained our Neutral recommendation on NRG Energy Inc. ( NRG ) 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.
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 rating).
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 ( AES ).