Solid potential gain
Currently, many utility stocks are trading at multiyear highs. NRG Energy stock (NRG) has fallen almost 20% from its 52-week high since its first-quarter results. The stock offers a solid gain potential of ~35% for the next 12 months. Based on analysts’ consensus estimate, NRG Energy has a target price of $47.4 compared to its current price of $35.2.
Among the 11 analysts tracking NRG Energy stock, four recommended a “buy,” four recommended a “strong buy,” and three recommended a “hold.” None of the analysts recommended a “sell” as of June 24.
NRG Energy stock was trading at a forward PE ratio of 9x—based on analysts’ earnings estimates. The stock is much lower than its five-year historical valuation. On average, utilities are trading at an average forward PE ratio of ~18x. NRG Energy stock seems attractive given its lower valuation compared to its peers.
NRG Energy’s business mix improved in the last few years due to a transformation plan devised by activist shareholders. The stock has more than doubled over the last two years. NRG Energy stock has outperformed broader utilities. In the first quarter, NRG Energy’s net income fell 66% compared to the first quarter of 2018. Income-seeking investors might shun the stock due to its trivial dividends. On average, utility stocks yield 3.2%, while NRG Energy yields 0.3%.