Based out of the energy hub of Houston, NRG Energy Inc. (NRG) is a utility giant that generates and supplies electricity. The company's energy portfolio includes coal, natural gas (NGF25), crude oil (CLF25), wind, nuclear, and solar energy, which it uses to generate, produce, and distribute electricity to residential and business customers.
Valued at $20.1 billion by market cap, NRG is a component of the S&P 500 Index ($SPX).
NRG Stock Outperforms the Market
Unlike some of its utility sector peers - Vistra (VST) and Constellation Energy (CEG) come to mind - NRG hasn't really dominated headlines this year for its stellar price action. However, the utility stock has put the broader S&P 500 to shame with its 2024 performance.
NRG stock is up 85.8% on a year-to-date basis, and has more than doubled over the past 52 weeks. By comparison, the S&P 500 has gained roughly 30% over both time frames.
NRG Energy also offers a quarterly dividend of $0.41, which results in a yield of 1.64% at current levels. The company has a generous 5-year dividend growth rate of 68.5%, and has paid dividends consistently for over a decade.
NRG Hikes Buyback
NRG Energy reported its third-quarter results last month on Nov. 8, with the shares little changed after the results. The utility reported a loss of $767 million, or $3.79 per share; on an adjusted basis, that translated to a profit of $1.85 per share. Revenue totaled $7.22 billion for the quarter. Both figures fell short of Wall Street's expectations, and NRG attributed the quarterly loss to “unrealized non-cash mark-to-market losses on commodity hedges.”
NRG reported adjusted EBITDA of $1.055 million, up by $68 million from the year-ago period. Cash provided by operating activities was $31 million, while free cash flow before growth investments rose to $815 million.
The company hiked its share buyback plan to $925 million for 2024, and added that it's on track to achieve investment grade credit metrics by the end of this year, which is one year ahead of target. For 2025, NRG is targeting an 8% increase in its dividend, on an annualized basis, to $1.76 per share.
NRG's Google Partnership Could Drive Growth
Notably, the utility is partnering with Renew Home and Google Cloud to create 1 GW of virtual power plant (VPP) platform capacity in Texas.
“At scale, for a 650-megawatt VPP, we anticipate approximately $110 million in annual recurring margin for NRG, $80 million from consumer value, and $30 million from supply value,” said Rasesh Patel, head of NRG Consumer, on the Q3 conference call with analysts. “Looking ahead to a 1-gigawatt VPP, we project the total annual incremental margin to exceed $160 million, making VPP a highly profitable and flexible asset that strengthens both our financial and operational resilience.”
Jefferies Upgrades NRG Stock
The 9 analysts in coverage have an average rating of “Moderate Buy” for NRG stock, and the utility just won over a new fan in Jefferies. Last week, the brokerage firm upgraded NRG to “Buy” from “Hold,” and raised its price target to $113 from $93.
"Ironically dedicated power investors have largely overlooked NRG as the business has shifted to be more consumer-focused from generation-oriented, which creates a cleaner setup for shares," wrote analyst Julien Dumoulin-Smith in a note to clients. "We remain optimistic that the Q4 2024 call can come with an initial site deal with a data center - an important milestone."
The average price target for NRG is $103.25, a premium of 7.5% to Monday's close. The newly raised price target from Jefferies suggests the stock can climb 17.6% from current levels.
