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NRG Energy Offers Strong Focus on Disruptive Energy Tech

By    |   Monday, 16 July 2012 11:48 AM

NRG Energy (NRG), at least based on its own self-description, can sound more like an Internet company than a power provider, with its strong focus on “disruptive” energy tech and renewable resources such as solar. Nevertheless, analysts see a company with a strong free cash flow and the financial capacity to strengthen its position.

NRG Energy is an integrated wholesale power generation and retail electricity company engaged in the ownership and operation of power generation facilities; the trading of energy, capacity and related products; and transacting in and trading of fuel and transportation services.

In addition, NRG is a retail electricity company engaged in the supply of electricity, energy services, and cleaner energy products to retail electricity customers in deregulated markets through Reliant Energy, Green Mountain Energy, and Energy Plus, known collectively as the retail businesses.

Finally, management said in a recent report, NRG is focused on the deployment and commercialization of potentially disruptive technologies, like electric vehicles, distributed solar and smart meter technology, which have the potential to change the nature of the power supply industry.

NRG's generation facilities consist of intermittent, baseload, intermediate and peaking power generation facilities in the United States and two international locations. The sale of capacity and power from baseload generation facilities accounts for a majority of the company's generation revenues.

NRG's retail businesses arrange for the transmission and delivery of energy-related products to customers, bill customers, collect payments for products sold, and maintain call centers to provide customer service. Based on metered locations, as of Dec. 31, 2011, NRG's Retail Businesses combined to serve approximately 2.1 million residential, small business, commercial and industrial customers.

“The company believes that the American energy industry is going to be increasingly impacted by the long-term societal trend towards sustainability which is both generational and irreversible,” NRG management said.

“Moreover, the information technology-driven revolution which has enabled greater and easier personal choice in other sectors of the consumer economy will do the same in the American energy sector over the years to come. As a result, energy consumers will have increasing personal control over whom they buy their energy from, how that energy is generated and used and what environmental impact these individual choices will have.”

NRG Energy has a market cap of $4.01 billion in a sector, independent power producers and traders, where the average company size is $1.31 billion. Its trailing 12-month P/E ratio is 19.78 and its five-year projected price-to-earnings-growth (PEG) ratio is 1.90, compared to 5.54 for the sector.

Its projected earnings per share growth for the coming year is negative 68.18 percent, compared to a sector average of 25.72 percent.

Strong performance

Analysts are mixed on NRG, with buy or outperform calls from Merrill Lynch, Morgan Stanley, Deutsche Bank, Standard & Poor’s Equity Research, and Jefferies.

“We continue to like NRG's focus on strong operational performance and cost control, as well as its proposed repowering and greenfield development efforts, including a focus on solar generation, with 855 MW under construction or in development,” S&P analysts wrote in mid-May.

“NRG is generating substantial free cash flows. It expects to implement a 9 cent quarterly dividend in the third quarter. We expect NRG to continue making share repurchases in 2012 and to possibly pay down additional debt and/or invest in additional projects.”

NRG Energy next reports on Aug. 2.

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