NRG Energy shares skyrocket
There was a tsunami in NRG Energy (NRG) shares on July 12, 2017. NRG Energy stock opened 19% up and maintained the uptrend throughout the day. At the close, it was up 29.4% and closed at a two-year high of $21.09. Utilities (XLU) rose 0.8% for the day.
NRG Energy, the biggest independent power producer in the country, released its transformation plan yesterday. The plan includes exiting from NRG Energy’s Yield and Renewables segments and cutting down its total debt. The plan came five months after activist shareholders Elliott Management and Bluescape Energy Partners disclosed their stake in NRG Energy.
NRG Energy stock also experienced an extraordinary increase in volume on July 12, 2017. Compared to a three-month average daily volume of 4.3 million shares, NRG Energy witnessed volume of 53.5 million for the day.
NRG Energy plans to focus on its mainstay—its merchant power business, which is driven by fossil fuels. It plans an asset sale worth $4 billion of its Renewables and NRG Yield (NYLD) segments to cut down its debt in the long term. NRG Energy is looking to divest 50%–100% from NRG Yield. The plan aims to trim $13.0 billion of total debt from NRG Energy’s books from its current outstanding debt of $19.0 billion.
NRG Energy plans to generate annual free cash flow of $855 million and cash reserves of $6.3 billion through 2020.
The transformation plan was devised by NRG Energy’s Business Review Committee, which is headed by Bluescape Energy Partners’ John C. Wilder. He was the CEO of TXU Corporation in 2004—it was sold in 2007.
It should be noted that NRG Energy’s renewables and yieldco were better-performing segments compared to its core business. NRG Energy plans to divest these businesses when renewables (TAN) generation is gaining solid ground. It might successfully trim the current debt burden and its stock could continue to rise in the short term. However, its merchant power business might remain under stress until power prices and demand growth recover.