Shares in US-listed NRG Energy NYSE:NRG have been very rewarding for stockholders over the last 12 months, but there are no signs that the stock has yet to run out of steam. This despite some arm wrestling at board level with a major US hedge fund.
Houston-based NRG Energy used to be the wholesale arm of Northern States Power Company, and generates power using a broad range of energy sources. NRG Energy published some very impressive results in November, demonstrating its underlying financial strength and further justification for the gains in the share price.
NRG Energy stock pushes to new highs
Looking at the stock price first, it has really been on a run since last May, when it traded at $31. It is now over $50. There has been a major recovery since 2022, when we saw the stock drop like a rock in Q4. Stock is now trading at frankly unprecedented levels.
This may all be surprising, since NRG has been heavily criticised for some of the strategic decisions it has made in the past. NRG seems to attract the attention of activist hedge fund investors on a regular basis, including Elliott Management, which regularly weighs in on strategy.
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Activist investors can sometimes be a good thing for a company, helping to revitalise firms with solid assets and businesses which are being run by sluggish and unimaginative management teams. In other circumstances, the management team might be getting too imaginative, and the fund ends up working to rally otherwise passive shareholders to prevent the company being driven off a cliff.
Elliott Management upset by Vivint Smart Homes acquisition
Elliott has been upset by the NRG Energy decision to acquire Vivint Smart Home, which provides smart home devices like thermostats and security cameras. Elliott has a good track record with NRG Energy, having turned things around in 2017, making the stock into one of the shiniest opportunities in the S&P 500. But the directors that the fund manager installed then have since stepped down, and now the worry is that NRG Energy is off jousting at windmills again.
Power producers with a big Texas portfolio are under immense scrutiny, as they struggle with huge extremes in weather in the state, from bitingly cold winters to scorching hot summers.
The argument that could be made for the Vivint deal is that we are moving forward into a world where the so-called Internet of Things is going to be a big deal. It provides NRG with the capability, as a provider of power to households, to get much more involved in the data consumers produce around their power usage. This data in and of itself could become a valuable commodity.
Farewell to Maurico Guiterrez
Some investors felt differently, however, with the NRG Energy stock dropping 15% when the Vivint deal was announced. It also cost CEO Mauricio Gutierrez his job, with Elliott appointing four new board directors at NRG Energy in November last year. Since then the shares have risen further, so the investor base seems content.
NRG Energy looks very much like a stage coach, with Elliott riding shotgun. The fund seems to be keeping the company on the right track, but is also ready to use its shotgun on the driver if he starts to get ideas about deviating onto another route.
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