Given its rise of more than 130% last year, NRG Energy (NRG), the largest merchant power stock, holds the top spot among the most rallied utility stocks. Interestingly, analysts still seem fairly bullish on NRG.
If we consider analysts’ mean price target of $32.9 for the stock, NRG Energy, the smallest component of the S&P 500 Utilities Index (XLU), has an estimated rise of nearly 13%. It’s currently trading at $29.2.
Among the eight analysts tracking NRG stock, three currently rate it as a “strong buy,” while four rate it as a “buy.” One analyst recommends a “hold” on the stock, and none recommend “sells” on the stock as of January 9, 2018.
NRG stock rallied 130% last year fueled largely by the involvement of activist shareholders and their transformation plan.
On January 8, 2018, NRG Energy stock was trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 13.3x. US utilities’ (XLU) average valuation is near 11x. NRG Energy’s five-year historical average EV-to-EBITDA multiple is 11x. Thus, NRG Energy stock appears to be trading at a large premium compared to both the industry (IDU) average and its historical valuation.
NRG Energy is among the most volatile stocks in the S&P 500 Utilities Index (XLU). You can read more about it in Analyzing the Top 5 Most Volatile S&P 500 Utilities.
Let’s take a look at Sempra Energy next to see how it’s placed going forward.