NRG Energy's Price Fall Barely Arrested by Acquisition Move - Analyst Blog

NRG Energy, Inc. ( NRG ) has entered into an agreement with Goal Zero, a leader in personal solar products, for acquiring the latter for an undisclosed amount. Upon customary approvals, the transaction is expected to be completed in the third quarter of 2014.

Despite the declining trend after reporting unfavorable second-quarter 2014 results on Aug 7, 2014, the market reacted positively to the acquisition news with the share price gaining a marginal 0.4% to close at $29.42 on Aug 14, 2014 from the previous day's closing. However, the share price was again down 0.9% on Aug 15 to close at $29.16.

Headquartered in Salt Lake City, Goal Zero provides different kinds of solar power products, including power packs, solar panels, solar kits and several other accessories, to its customers. Currently, the firm markets a set of portable solar power and battery-pack products and accessories. Goal Zero is presently expanding its operations in the outdoor and adventure sports segment.

If approved, NRG Energy will merge Goal Zero with its NRG Home division. During the second-quarter 2014 earnings call, the company announced that it will reorganize its retail, residential solar and home product and services businesses into NRG Home.

NRG Energy's efforts to boost its product portfolio under the proposed NRG Home division are appreciable. Earlier, on Mar 27, 2014, the company acquired New Jersey-based Roof Diagnostics Solar, which engages in selling and installing rooftop solar panels.

During the second quarter, NRG Energy's retail customer count increased by 35,000 across both Texas and the Northeast. In addition, the company added 500,000 customers to its portfolio through the acquisition of the competitive retail electric business of Dominion Resources, Inc. ( D ). The proposed Goal Zero acquisition will enable the company to meet increasing customer demand, besides providing a wide array of products and services.

The addition of Goal Zero will strengthen NRG Energy's domestic market through the utilization of Goal Zero's distribution channels and customer bases along with exploring cross-selling opportunities. In addition, NRG Energy can penetrate into new territories by leveraging Goal Zero's presence in the sub-Saharan Africa. This will enable the company to expand its revenue stream.

Earnings Recap

NRG Energy continued to miss the consensus estimate in the second quarter of 2014 as well. A steady rise in operating expenses is our primary cause of concern as they eat into the company's margins. In the second quarter, total operating expenses jumped 33.7% year over year to $3.5 billion, primarily due to higher cost of operations and depreciation expenses. An inability on the part of the company to curb its rising cost burden will affect future results.

NRG Energy currently holds a Zacks Rank #5 (Strong Sell). However, some better-ranked stocks in the industry include ALLETE, Inc. ( ALE ) and CMS Energy Corp. ( CMS ), each carrying a Zacks Rank #2 (Buy).

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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 Nasdaq, Inc.

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

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