Looking Deeper into NRG Energy’s Upside
Our next pick from the S&P 500 utilities that have an attractive estimated upside for the next year is NRG Energy (NRG), which has a nearly 30% upside from its current levels. According to analysts’ estimates, NRG has a median price target of $16.00 against its current price of $12.34.
On December 27, 2016, of the 14 analysts tracking NRG Energy, three recommended it as a “strong buy” while five recommended it as a “buy.” Six analysts recommended NRG as a “hold,” and none of the analysts had a “sell” recommendation for NRG.
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NRG’s peer Dynegy (DYN) has a median price target of $14.00 against its current market price of $8.30. It implies an estimated upside of 69% during the next year.
Natural gas giant merchant power player Calpine Corporation (CPN) has a median price target of $15.63 against its current market price of $11.64. This implies an estimated upside of 34% during the next year.
Bleaker future of merchant stocks
Merchant power players seem to offer a generous upside for the next year. Investors should consider the risks associated with these stocks. Unlike traditional utilities (VPU), merchant power player stocks often have high volatility, driven by their volatile earnings.
Falling load growth and rising capacities, particularly at competitive prices, are likely to keep power prices sluggish. Energy demand management is expected to increase during peak demand periods, thereby dragging independent power producers’ profits.
In the absence of growth in power demand, an increasing supply of power may not bode well for merchant power players. As a result, the current bleak picture for these players may become gloomier in the near future.