Is NRG Energy Trading at a Fair Valuation after Its Recent Fall?



NRG Energy’s valuation

After such a massive correction of nearly 30% in the last couple of months, is NRG Energy trading at a fair valuation? Is it an opportunity for new entrants? We’ll have a look below.


As of August 22, 2016, NRG Energy is trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 7.8x. An EV-to-EBITDA multiple tells us whether a stock is overvalued or undervalued, regardless of the company’s capital structure. US merchant power players’ average multiple stands at 9.5x.

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Peer comparison

Among its peers, Calpine (CPN) is trading at an EV-to-EBITDA multiple of 10.5x, while AES’s (AES) multiple is 9.1x. Dynegy (DYN) is trading at a valuation multiple of 11.4x.

The forward EV-to-EBITDA multiple considers current EV and EBITDA estimates for the next 12 months. NRG Energy’s forward EV-to-EBITDA multiple is 9.4x. The fact that its forward multiple is higher than its current ratio indicates expectations of lower EBITDA for 2016.

Price-to-earnings multiple

NRG Energy’s PE (price-to-earnings) multiple currently stands at 9x. The utility sector’s average multiple is near 19x. As for NRG’s peers, AES (AES) and Calpine (CPN) are trading at PE multiples of 11.5x and 12.5x, respectively.

The recent stock price fall may be one of the main reasons behind the discounted valuation of NRG Energy. By comparison, broader utilities are still lingering near their annual peaks and are trading at premium valuations.

Let’s see what institutional investors did with their NRG holdings during its recent fall.


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