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Is NRG Energy Stock Still Attractive?

PART:
1 2 3 4 5
Part 4
Is NRG Energy Stock Still Attractive? PART 4 OF 5

Analyzing NRG Energy’s Current Valuation

Valuation

US utilities continue to trade at a premium to their historical valuations. It should be noted that NRG Energy (NRG) stock seems to be trading at a fair valuation compared to the industry average and its historical average.

On April 12, 2017, NRG Energy stock was trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation multiple of 10.0x. US utilities’ (XLU) average multiple is just above 10.0x. NRG Energy’s five-year historical average EV-to-EBITDA ratio is ~11.0x.

Analyzing NRG Energy’s Current Valuation

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The EV-to-EBITDA ratio provides a comparative idea of a company’s valuation, regardless of its capital structure. EV is the combination of a company’s market capitalization and debt minus its cash holdings.

Peer valuation

In comparison, peer merchant power players Dynegy and Calpine are trading at EV-to-EBITDA multiples of 9.2x and 10.0x, respectively.

Large-cap peer-regulated utilities such as NextEra Energy (NEE) and Southern Company (SO) have valuation multiples beyond 12.0x. Duke Energy has an EV-to-EBITDA ratio near 10.0x.

With a market value of $5.9 billion, NRG Energy has seen a remarkable rally so far in 2017. The company’s momentum accelerated when Elliott Associates noted that the stock was “deeply undervalued.”

Read Will Merchant Power Stocks Be Less Volatile This Year? for more information about this sector in the power industry.

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