Company Overview: NRG Energy, Inc. (NYSE: NRG) is an integrated electricity generation company. In addition, the company provides energy solutions and natural gas to small businesses, residents, and commercial & industrial customers through its diversified portfolio of retail brands. The company’s segments include Texas, East, and West/Other.

­­­­­­NRG Details

Material Business Updates

Figure 1: Key Media Releases

Source: Company Reports, Analysis by Kalkine Group

Historical Financial Trend:

Figure 2: Historical Financial Overview

Source: Company Reports, Analysis by Kalkine Group

FY21 Performance:

Figure 3: Annual Performance

Source: Company Reports, Analysis by Kalkine Group

Top 10 Shareholders:

The top 10 shareholders together form ~51.95% of the total shareholding. The Vanguard Group, Inc. and BlackRock Institutional Trust Company, N.A., hold a maximum stake in the company at ~­­­13.01% and ~7.33%, respectively.

Figure 4: Top 10 Shareholders

Source: Analysis by Kalkine Group

Key Metrics:

With the Direct Energy acquisition and controlled cost of Winter Storm Uri, NRG delivered considerable top-line and bottom-line growth in FY21. The declining trend in the cash conversion cycle has illustrated prudent working capital management.

Figure 5: Key Financial Metrics

Source: Analysis by Kalkine Group

Outlook:

Figure 6: Credit Profile and Operating Guidance

Source: Company Reports, Analysis by Kalkine Group

Key Risks:

The onset of recent geopolitical unrest between Russia and Ukraine has posed significant unrest globally. The considerable movements in electricity prices suggest the effective use of heeding strategies to curtail commodity price risks.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Stock Recommendation:

NRG has delivered 3-month and 6-month returns of ~+1.249% and ~-20.144%, respectively. The stock is trading below the average of the 52-week high price of US$46.10 and the 52-week low price of US$31.94, indicating an accumulation opportunity. The stock has been valued using the EV/EBITDA multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company might trade at a slight discount compared to its peers’ average EV/EBITDA (NTM trading multiple), considering the normalisation of DE acquisition in coming years and geopolitical unrest across the globe. For valuation, a few peers like Pinnacle West Capital Corp (NYSE: PNW), PNM Resources Inc (NYSE: PNM), Constellation Energy Corp (NASDAQ: CEG) and others have been considered. Considering the prudent capital allocation, constant leverage reduction, DE acquisition impact, current trading levels, and potential upside as indicated by the valuation, we give a “Buy” recommendation on the stock at the closing market price of $36.54, as of 01 March 2022, down by ~3.44%. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

NRG Weekly Technical Chart (Source: REFINITIV)

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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