NRG Energy, Inc. – Value Analysis (NYSE:NRG) : April 24, 2017

Capitalcube gives NRG Energy, Inc. a score of 16.

Our analysis is based on comparing NRG Energy, Inc. with the following peers – Edison International, Southern Company, El Paso Electric Company, Duke Energy Corporation, Eversource Energy, AES Corporation, OGE Energy Corp., Exelon Corporation, NextEra Energy, Inc. and Calpine Corporation (EIX-US, SO-US, EE-US, DUK-US, ES-US, AES-US, OGE-US, EXC-US, NEE-US and CPN-US).

Investment Outlook

NRG Energy, Inc. has a fundamental score of 16 and has a relative valuation of UNDERVALUED.

Fundamental Score

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Company Overview

  • With respect to peers, relative outperformance over the last year is in contrast to the more recent underperformance.
  • It trades at a lower Price/Book multiple (1.20) than its peer median (1.74).
  • NRG-US‘s EBITDA-based price multiple implies slower growth than its peers despite its current comparatively high EBITDA-based returns.
  • NRG-US has relatively low net profit margins while its asset efficiency is relatively high.
  • Changes in annual earnings (relative to peers) are better than the change in its revenues (relative to peers), implying the company is focused more on earnings.
  • NRG-US‘s return on assets currently and over the past five years has trailed the peer median and suggests the company might be operationally challenged relative to its peers.
  • The company’s relatively low gross and pre-tax margins suggest a non-differentiated product portfolio and not much control on operating costs relative to peers.
  • While NRG-US‘s revenue growth in recent years has been above the peer median, the stock’s Price/EBITDA ratio is less than the peer median suggesting that the company’s earnings may be peaking and the market expects a decline in its growth expectations.
  • The company’s relatively low level of capital investment and below peer median returns on capital suggest that the company is in maintenance mode.
  • NRG-US seems too levered to raise additional debt.

Access our research and ratings on NRG Energy, Inc.

Leverage & Liquidity

NRG-US would seem to have a hard time raising additional debt.

  • With debt at a relatively high 87.14% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 48.29%), and relatively tight interest coverage level of 1.25x, NRG-US would have a hard time raising much additional debt. The company has a Constrained profile in terms of its ability to take on further debt.
  • All 10 peers for the company have an outstanding debt balance.

NRG-US has maintained its Limited Flexibility profile from the prior year-end.

  • NRG-US‘s interest coverage is similar to its four-year average interest coverage of 1.12x.
  • Compared to 2015, interest coverage has remained relatively stable for both the company (1.25x) and the peer median (3.20x).
  • NRG-US‘s debt-EV has declined 2.12 percentage points from last year’s high but remains above its four-year average debt-EV of 80.98.
  • While its debt-EV decreased to 87.14% from 89.26% (in 2015), its peer median increased during this period to 48.29% from 45.24%.
  • Relative to peers, debt-EV fell 5.17 percentage points.

Access the detailed analysis for NRG Energy, Inc.

Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Edison International 32.84 0.36 3.5 26.69
Southern Company 49.27 0.75 4.03 10.27
El Paso Electric Company 42.04 0.54 2.69 21.14
Duke Energy Corporation 48.29 0.7 3.2 14.54
Eversource Energy 37.92 0.68 4.56 19.86
AES Corporation 69.53 1.22 1.51 11.3
OGE Energy Corp. 30.03 0.53 3.36 27.35
Exelon Corporation 52.29 0.92 2.69 28.69
NextEra Energy, Inc. 36.18 0.6 4.12 19.59
Calpine Corporation 86.76 1.2 -0.12 8.04
NRG Energy, Inc. 87.14 1.46 1.25 11.1
Peer Median 48.29 0.7 3.2 19.59
Best In Class 30.03 1.46 4.56 28.69

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Company Profile

NRG Energy, Inc. engages in the production, sale, and distribution of energy and energy services. Its wholesale operations include plant operations, commercial operations, EPC, energy services and other critical related functions. It operates through the following segments: Generation, Retail, Renewables and Corporate. The Generation segment includes company’s wholesale operations including plant operations, commercial operations, EPC, energy services and other critical related functions. The Retail segment provides energy and related services as well as personal power to Mass Market consumers through various brandsand sales channels across the U.S. Retail also includes C&I customers and other distributed and reliability products which are within NRG’s Business Solutions group. The Renewables segment focuses on the acquisition, development and operation and maintenance of utility scale wind and solar, community solar and distributed solar generation assets as well as the management and operations of the renewable generation assets owned by NRG Yield, Inc. The Corporate segment includes residential solar and electric vehicle services. The company was founded in 1989 and is headquartered in Princeton, NJ.

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