How’s NRG Energy Valued Compared to Its Peers?
NRG Energy (NRG) shares seem to be trading at a fair discount compared to the industry average and its historical average. On February 6, 2017, the stock was trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation multiple of 9x. The average multiple of US utilities (XLU) stands just above 10x. NRG Energy’s five-year historical average EV-to-EBITDA ratio comes to 11x.
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Investors might find the valuation of merchant power stocks alluring. They often have attractive price targets. However, it’s important to note that they can be very risky due to their volatile stock movements, largely driven by their relatively less stable earnings.