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NRG Energy (NRG) Rides on Acquisition, Diverse Customer Base

NRG Energy, Inc. NRG continues to expand through organic and inorganic initiatives. The company’s diverse customer base and long-term customer retention strategy increase the predictability of earnings.

NRG’s focus on emission cuts will boost its long-term growth. Its dividend policy and share repurchase program will further increase shareholders’ value.

However, this Zacks Rank #1 (Strong Buy) stock has to face risks related to disruptions in its fuel delivery system.

Tailwinds

Recently, NRG completed the acquisition of Vivint Smart Home. Integration efforts for the same are now fully underway. The company defined growth synergy target of $30 million for 2023. It expects growth synergies of $300 million through a target for cross-sell, Vivint organic growth and sales channel optimization. In total, recurring synergies of $400 million are expected to be achieved over the next three years.

The company has been consistently increasing its dividend to attract investors. In January 2023, its board of directors approved a quarterly dividend hike of 8%, which is in sync with NRG’s long-term annual dividend growth target rate of 7-9% per share. In April 2023, the board declared a quarterly dividend of 37.75 cents per share, which resulted in an annualized dividend of $1.51 per share.

NRG Energy has made a significant progress in its transformation to an integrated power company, through its focus on customers. The company sells electricity to a range of customers and none of them contributed more than 10% to its revenues as of Dec 31, 2022. NRG has been able to retain customers due to its high-quality services. It does not depend on a single customer for revenues, which adds stability to customer bills and increases earnings predictability.

Headwinds

The disruption in NRG Energy’s fuel supplies could adversely impact its results of operations, financial condition and cash flows. This is because the company relies on natural gas, coal and oil to fuel the majority of its power generation facilities. These facilities are subject to the risks of disruptions or curtailments in power production in case of counterparty failure or a disturbance in the fuel delivery system.

Other Stocks to Consider

Some other top-ranked stocks from the same industry are NiSource Inc. NI, IDACORP, Inc IDA and OGE Energy Corp. OGE, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

NiSource’ long-term (three- to five-year) earnings growth rate is pegged at 6.9%. The Zacks Consensus Estimate for NiSource’ 2023 earnings per share indicates an increase of 6.8% from the previous year’s reported number.

IDACORP’s long-term earnings growth rate is pinned at 3.68%. It delivered an average earnings surprise of 4.6% in the last four quarters.

OGE Energy’s long-term earnings growth rate is pegged at 17.89%. It delivered an average earnings surprise of 19.92% in the previous four quarters.

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