NRG Energy Inc., a utility stock, has outperformed the S&P 500 by at least 15% year to date, with shares gaining more than 50%. The utilities sector has returned -1.97% so far this year, ranking fourth behind financial services, energy, and industrials. The GuruFocus All-in-One Screener identified utility companies with market caps greater than $5 billion, P/E ratios below 15, and predictability ranks of at least one out of five stars as outperformers of the S&P 500.
NRG Energy, founded in 1989, is one of the largest energy providers in the U.S., serving over 7 million customers and also operating in Canada. The company has grown through acquisitions, including purchases of Vivint Smart Home, Direct Energy, Stream Energy, and XOOM Energy in recent years. NRG Energy reported its first-quarter financial results, posting revenue of $7.43 billion, net income of $511 million, or earnings of $2.31 per share, and EBITDA of $849 million. Despite a decline in revenue, the company saw improvements in other metrics and reaffirmed its guidance for 2024.
While NRG Energy has a strong outlook for 2024, with guidance for adjusted EBITDA, cash from operating activities, and free cash flow, the company recorded $278 million in cash and $10.87 billion in debt on its balance sheet. This debt level may raise concerns, but the company remains committed to creating value for shareholders through share repurchases and dividends. The stock’s valuation, with a market cap of $16.38 billion and a P/E ratio of 11.24, suggests it may be overvalued based on historical ratios and future earnings projections.
Several gurus, including Steven Cohen and Stanley Druckenmiller, have entered new positions in NRG Energy, while insider activity has mostly consisted of sells in 2024. Despite the bearish insider activity, sentiment towards the stock has been fairly bullish over the past two quarters. The company’s financial health, as indicated by the Altman Z-Score and return on invested capital, may raise some concerns, but the Piotroski F-Score indicates healthy operations.
While NRG Energy has performed well this year, its valuation and debt load may make it too expensive for new investments. However, as a utility company providing essential services to consumers, it may still be worth keeping an eye on. Investors should be cautious and conduct thorough research before making any investment decisions regarding NRG Energy or other utility stocks.
