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NRG Energy's (NRG) Transformation Plan, Green Goals Bode Well

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NRG Energy NRG is likely to benefit from the Direct Energy acquisition and its three-year Transformation Plan, which it already completed. Also, focus on cleaner energy generation is likely to enhance its existing operations.

The Zacks Consensus Estimate for 2021 earnings per share is pegged at $5.04, indicating a 110% rise from the year-ago reported figure. Also, the Zacks Consensus Estimate for 2021 revenues stands at $18.09 billion, implying a 98.89% surge from the year-earlier reported figure.

Tailwinds

NRG Energy continues to benefit from its three-year Transformation Plan, which was designed to strengthen its earnings, increase cost savings and boost shareholder value. Also, in January this year, the utility acquired Direct Energy for $3.42 billion, which will advance its customer-focused strategy, and enhance data and analytics. The buyout will create recurring synergies worth $300 million and reduce integration costs by $202 million.

None of the company’s customers contributed more than 10% to revenues at the end of 2020. Thus, the loss of any particular customer will not significantly impact its earnings. Though the company’s debt is higher than the industry average, its transformational activities are generating enough funds to meet its current-debt obligations. Plus, it is making efforts to slowly lower the proportion of debt in its capital mix.

NRG Energy is focusing on clean generation to curtail greenhouse gas emissions. It aims for a 50% emission cut by 2025 and a net-zero emission within 2050 from its 2014 baseline. Apart from the company, utilities like Duke Energy DUK, DTE Energy DTE and Avista Corporation AVA have plans in place to curb the carbon footprint for a pollution-free environment.

Woes

Intense competition in the wholesale power markets along with stringent government regulations might hurt the margins. Moreover, NRG Energy’s operations are subject to cyber-based security and integrity risks. Unplanned outages in old facilities might impede growth as well.


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