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NRG Energy (NRG) Completes Acquisition, Raises 2021 View

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Zacks Equity Research
·3 min read
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NRG Energy Inc. NRG lifted its 2021 projection, concurrent with the successful acquisition of Direct Energy. The company initiated its 2021 guidance last year when it had inked a deal to buy the North American subsidiary of Centrica PLC CPYYY on Jul 24, 2020.

2021 Guidance

The aforementioned integration will strengthen the company’s free cash flow and provide it with earnings diversification. Previously, the utility expected to achieve an adjusted EBITDA and a free cash flow before growth of $1,900–$2,100 million and $1,275–$1,475 million, respectively, in 2021 on a standalone basis. Now, with the closure of the deal, the combined entity’s operations are anticipated to attain an adjusted EBITDA and a free cash flow before growth of $2,400-$2,600 million and $1,440-$1,640 million each in 2021.

Transaction Benefits

The purchase will likely complement NRG Energy’s integrated model, enabling better power generation to match customer demand alongside enhancing its retail natural gas capabilities. Also, the company will add more than 3 million retail customers from all 50 U.S. states and six Canadian provinces. The deal will offer NRG Energy anability to expand its successful capital-light renewable Power Purchase Agreement strategy outside Texas and will be accretive to its free cash flow.

The buyout is likely to draw $135 million and $225 million worth of synergies in 2021 and 2022, respectively. In addition, the company expects to achieve its targeted credit ratios within 12 months of the deal’s completion, thereby maintaining its commitment to achieve investment grade credit metrics.

Other Efforts

NRG Energy has been continuously making concerted efforts to consolidate its earnings and increase cost savings, thereby boosting the shareholder value. In August 2019, the company acquired Stream Energy's retail electricity and natural gas business, which has operational presence in nine states and at Washington, DC, for $329 million. Such inorganic efforts act as key drivers for the company and justify its raised guidance.

Zacks Rank & Price Performance

Currently, the company holds a Zacks Rank #5 (Strong Sell).

Shares of NRG Energy have gained 7.1% against the industry’s fall of 1% in the past month.

Stocks to Consider

A few better-ranked electric utilities are CenterPoint Energy, Inc. CNP and DTE Energy Company DTE, both carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term (three to five years) earnings growth rate of CenterPoint Energy and DTE Energy is pegged at 5% and 5.67%, respectively.

CenterPoint Energy and DTE Energy delivered a respective earnings surprise of 13.22% and 10.35%, on average, in the trailing four quarters.

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CenterPoint Energy, Inc. (CNP) : Free Stock Analysis Report
 
DTE Energy Company (DTE) : Free Stock Analysis Report
 
NRG Energy, Inc. (NRG) : Free Stock Analysis Report
 
Centrica PLC (CPYYY) : Free Stock Analysis Report
 
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