NRG Energy, Inc.

NRG Details

NRG Energy, Inc. (NYSE: NRG) is a consumer services company that produces and sells energy and related products and services in the US and Canada. The company sells power, natural gas, and home and power services.

Financial Results for the First Quarter Ended 31 March 2022 (Q1FY22)

• Net Income stood at $1,736 million, or $7.17 per diluted common share, primarily led by higher mark-to-market gains on economic hedge positions in 2022 because of significant increases in natural gas prices and power prices versus the prior year's losses related to Winter Storm Uri.
• Total adjusted EBITDA stood at $509 million, where Texas adjusted EBITDA was $198 million, down $48 million YoY, East adjusted EBITDA was $325 million, up $64 million YoY, and West/Services/Other's adjusted EBITDA was $(14) million, down $74 million YoY.
• Before Growth (FCFbG), free cash flow stood at $239 million and executed a $1 billion share repurchase program, $301 million completed through 30 April 2022.

Source: Company Reports, Analysis by Kalkine Group

Outlook

The company projects adjusted EBITDAa to be $1,950-$2,250 million, adjusted cash flow from operations between $1,380-$1,680 million, and FCFbG between $1,140-$ 1,440 million for FY22. The company focuses on maintaining a solid balance sheet and achieving investment-grade credit metrics between 2.50x-2.75x corporate net debt to adjusted EBITDA, mainly through realising Direct Energy run-rate earnings and other growth initiatives. The share repurchase program and the common stock dividend will continue as per the company’s plan.

Key Risks

The onset of recent geopolitical unrest between Russia and Ukraine has posed significant unrest globally. The considerable movements in electricity prices suggest effective heeding strategies to curtail commodity price risks.

Valuation Methodology: EV/EBITDA Based Relative Valuation (Illustrative)

Stock Recommendation

Over the last six months and one-year the stock was ~+16.19% and ~+19.10%. The stock is trading higher than the average price of 52-week low-high range for the stock at $31.94-$46.10, respectively.

The stock has been valued using EV/EBITDA multiple based relative valuation (on an illustrative basis). The target price so arrived reflects a potential fall of low double-digit (in % terms). A slight discount has been applied to EV/EBITDA Multiple (NTM) (Peer Average), considering decreased Adjusted EBITDA for Texas due to increased supply costs mainly due to the extended forced outage at Limestone Unit 1 and winter hedge profile in Q1FY22.

Considering the resistance and target level achievement, current trading levels and risks associated, we are of the view that it is prudent to book profits at the current levels. Hence, we give a “Sell” rating on the stock at the closing price of $41.40 per share, up 9.79% as of 6 May 2022. 

Technical Overview:

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

NRG Energy, Inc. (NRG) is a part of Kalkine’s Global Green Energy Product

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.