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Will Merchant Power Stocks Be Less Volatile This Year?

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Part 10
Will Merchant Power Stocks Be Less Volatile This Year? PART 10 OF 10

Why Analysts Seem Bullish on Merchant Power Stocks

Price targets

Let’s see how analysts look at merchant power stocks this year. According to Wall Street analysts, NRG Energy (NRG) has a one-year median price target of $16.25. This implies an estimated upside of nearly 17% from its current market price of $14.10.

Calpine (CPN) has a one-year median price target of $15.43 against its market price of $12.00, which implies an upside of 29%. For Dynegy (DYN), Wall Street analysts have a median price target of $14.00, which implies a gain of 44% in one year. The chart below shows analysts’ view on merchant power stocks. None of the analysts tracking these three merchant stocks had a “sell” recommendation on them as of January 12, 2017.

Why Analysts Seem Bullish on Merchant Power Stocks

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Outlook

Merchant power stocks could offer a generous gain for the next year. However, investors should consider the risks associated with these stocks. Unlike broader utilities (XLU), as earlier discussed, 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.

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