NRG Energy Inc (NYSE: NRG) jumped 6% in the stock market on Monday morning as Goldman Sachs added it to its Conviction List. The power provider’s Q1 results took a significant hit due to the recent winter storm, but Goldman Sachs now expects it to recover in the upcoming weeks.
NRG has underperformed the Utilities Select Sector SPDR Fund
According to Goldman Sachs’ Michael Lapides:
“We revise our forecasts to reflect other key takeaways such as higher customer growth as NRG expects to grow its retail customer presence and margin, as well as lower operating expense growth.”
For the next two years, the analyst expects $1.6 billion to $1.9 billion of free cash flow for NRG Energy with a multiple of net debt to EBITDA of under 2.75 times. In the first half, the Utilities Select Sector SPDR Fund (XLU) significantly outperformed the American energy company.
“With recent legislation passed in Texas that enables the state and Ercot’ — the operator of the state’s’ electrical grid — “to fund the defaults from various other parties, plus a return to far more normal operating conditions vs the abnormal February 2021, NRG’s cash flow should improve,” Lapides added.
Joe Terranova’s comments on the Goldman Sachs call
NRG’s performance improved in May, but it is still down 1% compared to the XLU on a year-to-date basis. Commenting on Goldman Sachs’ call, Joe Terranova of Virtus Investment Partners said on CNBC’s “Halftime Report:
“I agree with this call. This is a company with 3.7 million customers. They’re in 20 states and two Canadian provinces. Goldman rightly identifies it as a company with a strong balance sheet, free cash flow generation, and the ability to buy back 25% of its outstanding shares. Now we are past the February weather incident. You’ve got the visibility that you need to go in. This is a great utility name.”
NRG is now more than 10% up in the stock market this year.
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