NRG Energy (NRG)
NRG Energy (NRG) is the second-largest independent retail energy provider in the United States. The company boasts more than 2 million customers thanks to some recent acquisitions.
Management has been snapping up solar projects around the country, and its new capacity for business has caught my eye. A recent purchase of Dominion Resources’ (D) retail business added half a million customers, while Edison Mission’s renewable assets also helped extend its reach. An agreement to buy residential solar company Rooftop Diagnostics has further cemented NRG’s foray into new markets.
The company posted first-quarter earnings that underscored the momentum NRG has going for it. For the March period, NRG reported a loss of $56 million, or 18 cents per share, which is a vast improvement over the loss of $332 million, or $1.03 pershare, from a year ago. Revenues jumped nearly 70% to $3.5 billion — far better than the $2 billion anticipated by the Street.
On the conference call, management mentioned a “drop down” of new projects in the renewables portfolio to NRG Yield, for $349 million in cash. These include two solar facilities and a gas-fired plant in California. Most importantly for the near-term outlook, management raised its 2014 guidance and now expects adjusted EBITDA of $3.2-$3.4 billion — up from its previous estimate of $2.7-$2.9 billion.
NRG could see strong upside from current prices within a year as it continues to execute on its long-term plan of moving beyond its traditional energy base. Rising electricity prices should also benefit unregulated utilities such as NRG, and we’re headed into the summer months when demand for electricity demand should be strong. That means that these utilities have some leeway in pricing, which should help margins going forward.