NRG Energy, Inc. (NYSE: NRG) is a wholesale power generating company that owns/operates power plants with a net capacity of 24,175 megawatts.
A majority of NRG's revenue is baseload power. The significance? A stable cash flow. Further NRG's power source is largely natural gas-based, which is preferred, given likely additional restrictions/regulations moving forward for coal-fired plants as nations like the U.S. address climate change. NRG's power source mix: 45% natural gas, 34% coal, 16% oil, 5% nuclear.
NRG's strategy is to repower existing facilities and develop new generating capacity in markets where NRG owns assets, with an emphasis on baseload capacity, long-term power sales agreements, efficiency, and environmental enhancements. So far, NRG's business is on-track. The Reuters Fiscal Year (FY) 2007/2008 EPS consensus estimates for NRG are $2.24 to $2.26.
Further, there's a growing sense on Wall Street that analysts' FY 2008 EPS projections may be low, particularly given electric power demand trends in the U.S. Of course, a U.S. economic recession could dampen NRG's results, but absent that, the bias is toward NRG exceeding analysts' F2008 estimates.
The risks? The volatile natural gas and electric power commodity markets are a concern. Regional natural gas markets produce wider price swings than oil, which makes it difficult to project natural gas prices several quarters out. Prolonged high natural gas prices would certainly hurt NRG's results.
The First Call mean rating for NRG is: Buy [13 firms]. Mean 2008 target: $51.00 [high: $54, low: $43].
Stock Analysis: NRG Energy is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 2 years should be rewarded from NRG's shares. Sell/Stop Loss if you were to purchase shares in this company: $24.
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