NRG Energy (NRG) Gains on Diverse Customers & Debt Management
NRG Energy Inc. NRG has been gaining from the acquisition of Direct Energy and the stable demand from a wide variety of customers. NRG Energy’s focus on the generation of clean energy and proper debt management through its transformational activities is likely to drive its performance over the long run.
NRG Energy currently carries a Zacks Rank #3 (Hold). NRG’s long-term (three to five years) earnings growth is currently pegged at 9.6%. NRG Energy’s current dividend yield of 3.7% is better than the industry’s average of 3.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Tailwinds
In January 2021, NRG Energy completed the acquisition of Direct Energy for net $3.42 billion, which advanced the company’s customer-focused strategy and enhanced data and analytics. The company expects to realize annual synergies of $225 million and $300 million in 2022 and 2023, respectively. NRG continues to make good progress in the synergy target and realized $31 million in incremental synergies year to date.
NRG Energy sells electricity to a wide variety of customers and does not depend on a single customer to generate its revenues. Thus, the migration of customers to other operators is not going to have a significant impact on the company’s earnings.
NRG Energy’s total debt-to-total-capital ratio decreased to 61.5% in the first quarter of 2022 compared with 68.9% in the last reported quarter. Also, the times interest earned ratio at the end of the first quarter improved to 12.6 from 6.9 in the last reported quarter. A strong ratio indicates that the utility will be able to meet debt obligations in the near future without any difficulties. NRG had liquidity worth $2,917 million as of Mar 31, 2022.
NRG Energy is also focusing on the clean generation of energy to lower emissions and targets to achieve a 50% emission cut by 2025 and net-zero emissions by 2050 from the 2014 baseline.
Headwinds
NRG Energy operates in a highly competitive wholesale power market and needs to follow strict Federal, State and local rules and regulations. NRG relies on natural gas, coal and oil to fuel the majority of power generation facilities and any disruption in fuel supplies can adversely impact the company’s prospects. Also, NRG Energy is exposed to fluctuations in foreign currency. Hence, any appreciation in major currencies relative to the U.S. dollar will have an impact on the company’s net income.
Price Performance
In the past three months, shares of NRG Energy have declined 3.8%, narrower than the industry’s decline of 14.2%.
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Stocks to Consider
Some better-ranked stocks from the same industry are AVANGRID Inc. AGR, American Electric Power Company Inc. AEP and ALLETE Inc. ALE, each currently carrying a Zacks Rank #2 (Buy).
The long-term earnings growth of AVANGRID, American Electric Power and ALLETE is projected at 6.1%, 6.2% and 8.7%, respectively.
The Zacks Consensus Estimate for 2022 earnings per share of AVANGRID, American Electric Power and ALLETE has moved up 3.7%, 5.3% and 15.2% year over year, respectively.
AGR, AEP and ALE’s current dividend yield of 3.9%, 3.3% and 4.5% is better than the industry average of 3.2%.
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