NRG Energy Earnings: Early Days of Vivint Acquisition Going Well; Hot Weather Offers Upside

We are reaffirming our $37 fair value estimate for NRG Energy NRG after the company announced $819 million of adjusted EBITDA in the second quarter, up from $386 million in the year-ago quarter after adjusting for power plant retirements in 2022. We are reaffirming our no-moat rating and High Morningstar Uncertainty Rating.

The $5.2 billion Vivint acquisition, which closed March 10, added $217 million, or 26%, of EBITDA in the quarter. Management reaffirmed its adjusted EBITDA of $3.0 billion-$3.25 billion in 2023.

NRG is tracking in line with our full-year outlook. However, we think NRG could top our forecast based on the hotter-than-normal summer weather. Texas has set multiple electricity demand records and power prices have been relatively stable, both benefiting NRG’s retail business. We assume normal weather in our forecasts.

NRG reported early progress toward achieving $300 million of incremental free cash flow from the Vivint deal by 2025. We consider this a key part of ensuring the Vivint deal is value-accretive for NRG based on the price it paid. We continue to forecast $3.5 billion of EBITDA in 2026, including the Vivint synergies. There could be slight upside to this and our fair value estimate if management also hits its $250 million cost savings goal announced earlier this year.

NRG’s stock has rallied from $31 per share to near $38 this year, recovering some of the 27% drop in the stock in the days around the Vivint deal announcement in December. Solid first-half results and a positive outlook for the third quarter could mute some of the opposition from activist investor Elliott Management, which last reported a 13% ownership interest.

NRG management reaffirmed its plan to return the bulk of its cash flow—potentially more than $6.9 billion through 2027—to shareholders. This would be mostly value-neutral if the stock continues to trade near our fair value estimate.