NRG Energy, Inc.’s NRG execution of Transformation Plan, systematic capital expenditures and efforts to provide clean energy will support its long-term growth objectives. Also, its healthy liquidity position allows it to meet its near-term obligations.
Let’s focus on the factors that make this Utility - Electric Power company an attractive investment option.
Zacks Rank & Price Performance
NRG Energy holds a Zacks Rank #2 (Buy), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of the company have increased 3.8% in the past six months against the industry’s decline of 2.4%.
NRG Energy has an impressive VGM Score of B. Our research shows that stocks with a Style Score of A or B when combined with a Zacks Rank of 1 or 2 offer the best upside potential.
Earnings Growth Projection
The Zacks Consensus Estimate for 2020 earnings is pegged at $5.45 per share, suggesting a 37.63% increase from the year-ago reported figure. The Zacks Consensus Estimate for 2021 earnings stands at $7.03 per share, implying a 28.93% rise from the prior-year reported number.
Moreover, the long-term (three-five years) earnings growth rate is pegged at 41.66%.
NRG Energy initiated its three-year Transformation Plan in July 2017. This plan is designed to strengthen earnings, increase cost savings and boost shareholder value. The plan is on track for a $215-million worth cumulative EBITDA-accretive margin enhancement, which includes $80 million in 2020. In the first half, the company’s capital expenditure was $116 million. Estimated capital expenditures for the rest of 2020 are $163 million.
Initiatives to Lower Emissions
NRG Energy is focusing on generation of clear energy to lower its toxic emission levels. On Sep 24, 2019, it announced the goals set for its GHG emission reductionand under this plan, the company aimed to achieve a 50% cut by 2025 and reach net-zero emissions by 2050 from the 2014 baseline.
Other electric utilities are also making efforts to supply clean and reliable energy to its customers. Some of the companies, namely Duke Energy DUK, DTE Energy DTE and Xcel Energy Inc. XEL are planning to provide absolute clean energy by 2050.
As of Jun 30, 2020, NRG Energy had liquidity worth $2.2 billion, up from $2.1 billion as of Dec 31, 2019. The company’s times interest earned ratio has also been improving over the years. It came in at 3.73 at the end of the second quarter, up from 3.10 sequentially. This improvement indicates that the company will be able to meet its near-term debt obligations without much difficulty.
Efforts to Enhance Shareholder Value
In the first quarter of 2020, NRG Energy increased its annual dividend rate to $1.20 per share from 12 cents. It expects to achieve an annual dividend growth rate of 7-9% per share over the long term, subject to the board of directors’ approval. Currently, the dividend yield of the company is pegged at 4.07%, higher than its industry 3.70%.
Also, it is rewarding its shareholders via share buybacks. Through Aug 6, the utility completed $228 million of share repurchases. Notably, it does not intend to buyback any more shares in the remainder of 2020.
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