NRG Energy NYSE:NRG keeps coming up on my global and North American stock screens. It is never far from the top and this week was riding high, even before it came out with its latest figures on Wednesday.
NRG, together with its subsidiaries, trades as an integrated power company in the US. It operates through the Texas, East, and West segments. The company is involved in producing and selling electricity and related products and services to residential, commercial, industrial, and wholesale customers. It generates electricity using natural gas, coal, oil, solar, nuclear, and battery storage.
NRG reported a robust performance for Q4 and the FY 2023 numbers also looked good. This surpassed the guidance ranges, which is always a good sign. We saw record free cash flow before growth plus near-record adjusted EBITDA.
NRG Energy to pay down $500m in debt
Some other key considerations for investors: the company is still focused on its energy transition and electrification strategy and says it remains optimistic about future growth opportunities. This is a good sign. My belief is that any energy company of scale, especially in the developed world, needs to demonstrate an energy transition strategy.
NRG is also planning to pay down some $500m in debt, with $1.2bn returned to shareholders in the course of 2024. It also has a growth strategy in place to the tune of 15-20%.
related]
Last time we looked at NRG Energy, we noted it was taking flak from US activist hedge fund Elliott Management, which was upset by the company’s decision to acquire Vivint Smart Home.
We felt however that the Vivint deal could in fact be a positive move, as we transition 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.
NRG Energy stock was trading at $50.86 when we last covered the company. In the wake of this week’s results, it is up at $54.72 (close on Thursday in the US). There was a little bit of a dip in early February, but investors seem to be buying back in again.
Vivint Smart Homes resolving legal issues
Risk factors include the fact that NRG Energy is currently seeking a new CEO following the removal of Mauricio Gutierrez by shareholder pressure. This means the company does not have proper leadership and we could see a change of tack once a new CEO is appointed. It is not a major risk factor in my view, but one to pay attention to.
Another possible fly in the ointment from NRG Energy is the ongoing battle between Vivint Smart Homes and the FTC. The FTC alleged that Vivint helped unqualified customers get financing for home security products by misusing other people’s credit reports. As a result, people who had never interacted with the company found Vivint accounts on their credit reports. Some people were contacted by debt collectors for accounts they didn’t open.
Vivint Smart Homes has been settling with those affected. It also had to settle with SkyBell Technologies for patent infringement, this time to the tune of $45m. This is small beer for NRG, but Vivint does look like a bit of a naughty child with legacy legal issues which keep cropping up.
