Top gainer in 2018
NRG Energy (NRG) rose more than 75% in 2017 and almost 40% in 2018. NRG Energy, one of the smallest constituents of the Utilities ETF (XLU), has been on a roll for the last few years. The company’s activist investors introduced a transformation plan in 2017. What’s in store for NRG Energy investors in 2019?
NRG Energy’s transformation plan focused on streamlining the company’s operations and trimming down the total debt. The company sold non-core businesses like NRG Yield and Renewables in 2018. NRG Energy seems to be on track to meet its cost-saving targets for 2018, which will likely have a positive impact on its earnings in upcoming quarters. Analysts expect NRG Energy to have sturdy income growth in 2019.
Currently, NRG Energy stock is trading at a forward PE ratio of 9x based on analysts’ projected EPS for 2019. Utilities at large trade at an average forward PE ratio of 16x–17x. NRG Energy stock appears to have an attractive valuation given its lower forward PE ratio compared to peers’ average. NRG Energy seems to be trading at an attractive valuation considering the company’s higher potential EPS growth in 2019.
AES (AES) stock is trading at a forward PE ratio of 11x, which is higher than NRG Energy. AES appears to be trading at a discounted valuation compared to utilities at large and its historical average. AES rose more than 35% last year. In comparison, broader utilities (XLU) rose 3% in 2018.