We have maintained our Neutral recommendation on NRG Energy Inc. (NRG). The company currently has a Zacks Rank #3 (Hold).
Why the Reiteration?
The reiteration is primarily based on unfavorable results in the first quarter of 2013, and risks associated with fuel price volatility, stringent regulations and over-reliance on weather conditions. However, we consider NRG Energy’s diversified portfolio of electricity generation assets, strong financial position and efforts toward broadening the solar asset portfolio to be the catalysts for future growth.
In the first quarter of 2013, NRG Energy Inc.’s loss per share was wider than the Zacks Consensus Estimate and the prior-year figure primarily owing to a rise in operating and interest expenses.
Performance of the utility providers, to a great extent, depends on weather patterns of the region and NRG Energy is no exception. Periods of volatile weather conditions not only affect the demand, but severe weather conditions can cause interruptions in coal production and transportation, thereby increasing the company’s operating costs.
NRG Energy completed its GenOn-acquisition in Dec 2012. The company has already experienced positive impacts out of it and anticipates realizing $150 million of cost and operational synergies in 2013.
In addition, NRG Energy recently completed a number of projects like Marsh Landing Generating Station and Borrego I Solar Generating Station, and is presently in the middle of several ventures, including Ivanpah and El Segundo Power Generating Station. We expect completion of these projects to likely to add momentum to the company’s forthcoming results.
Apart from investment in growth projects, strong financial position allows NRG Energy to enhance shareholder value through increase in dividend payments in regular intervals. Recently, the company’s board of directors increased the rate of dividend by 33% to 12 cents per share.
Other Stocks to Consider
Other stocks from the industry that are presently performing better include Empresa Nacional de Electricidad S.A. (EOC) and MGE Energy Inc. (MGEE) with a Zacks Rank #1 (Strong Buy), and ALLETE, Inc. (ALE) with a Zacks Rank #2 (Buy).
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