An NRG Energy Inc. (NRG) unit, NRG Yield, Inc. (NYLD), has entered into an agreement to acquire the assets of privately held Energy Systems Company (ESC), for $120 million in cash.
Energy Systems is based in Omaha, Neb. This acquisition will allow NRG Yield to establish itself in a new market and bolster the thermal infrastructure platform. Most importantly, it shows the capability of the company to expand through third-party acquisitions.
NRG Yield is planning to fund the acquisition from its cash on hand. It exited the third quarter with a cash balance of $272 million. This acquisition will give NRG Yield access to Energy Systems’ existing long-term contracts. The remaining life of Energy Systems’ existing contracts run to nearly 11 years. This will ensure a steady earnings stream for NRG Yield for the next few years.
NRG Yield expects to close the acquisition by the end of this year. The acquired assets are expected to be immediately accretive, with the company expecting its cash available for distribution to increase by $8 million in 2014.
During the third quarter earnings release, NRG Yield set its target to increase the annual dividend by 10% to 15% per share over the next five years, beginning with an increase of 20% by the third quarter of 2014. We believe the additional funds from this acquisition will come in handy to meet its dividend growth goals.
NRG Energy holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the same sector include Alliant Energy Corporation (LNT), Black Hills Corporation (BKH) and Brookfield Infrastructure Partners L.P. (BIP). All these stocks carry a Zacks Rank #2 (Buy).
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