NRG Energy (NRG) to Gain From Acquisition, Diverse Customer Base
NRG Energy, Inc. NRG continues to expand through organic and inorganic initiatives. The company’s diverse customer base and long-term customer retention strategy will further boost its performance. Its dividend policy and share repurchase program will further increase shareholders’ value.
However, this Zacks Rank #3 (Hold) company has to face risks related to disruptions in its fuel delivery system.
Tailwinds
In March 2023, NRG completed the acquisition of Vivint Smart Home. During second-quarter 2023, it began the integration of Vivint Smart Home, which resulted in solid performance. Owing to such performance, the company has doubled its growth synergy target of $60 million for 2023.
NRG Energy has made a significant progress in its transformation to an integrated power company through its focus on customers. Courtesy of its high-quality services, the company has been able to retain customers. NRG does not depend on a single customer to generate revenues, which adds stability and predictability to customer bills and its earnings.
The company has been trying to slowly lower the proportion of debt in the capital mix for a while. It expects a total of $2.55 billion of debt reduction and has already completed $200 million debt reduction to further strengthen its balance sheet.
NRG is focusing on clean generation to lower emissions. On Sep 24, 2019, it announced greenhouse gas reduction goals. Under this plan, the company targets to achieve a 50% emission cut by 2025 and net-zero emissions by 2050 from the 2014 baseline.
Headwinds
The disruption in NRG Energy’s fuel supplies could adversely impact its result of operations, financial condition and cash flows. This is because the company relies on natural gas, coal and oil to fuel the majority of its power generation facilities. These facilities are subject to the risks of disruptions or curtailments in power production in case of counterparty failure or a disturbance in the fuel delivery system.
Stocks to Consider
Some better-ranked stocks from the same industry are Vistra Corp. VST, sporting Zacks Rank #1 (Strong Buy), and FirstEnergy Corporation FE and Portland General Electric POR, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for VST’s 2023 earnings per share (EPS) indicates an increase of 205.8% from the previous year’s reported number. The same for sales indicates a year-over-year increase of 46.2%.
FE’s long-term (three to five years) earnings growth rate is 6.45%. The Zacks Consensus Estimate for FE’s 2023 EPS indicates an increase of 5% from the previous year’s reported number.
POR’s long-term earnings growth rate is 6.02%. It delivered an average earnings surprise of 4.2% in the previous four quarters.
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