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Yahoo
7 days ago
- Business
- Yahoo
NRG's Stock Is a Top Gainer. How Does It Really Make Money?
NRG Energy, once viewed as a boring retail energy supplier, suddenly is one of America's hottest stocks. Investors see a power producer expanding rapidly to tap surging demand driven by artificial intelligence. But NRG also is a large derivatives trader. It has volatile earnings, a weak balance sheet and in some ways resembles a commodities hedge fund that also owns power plants. About $5.2 billion of NRG's assets were derivative contracts as of March 31, compared with $2.2 billion of property, plant and equipment. The Fed Forecasts Stagflation Paramount Has Offered $15 Million to Settle CBS Lawsuit. Trump Wants More. The 'TACO Trade' That Has Trump Fuming How Ozempic's Maker Lost Its Grip on the Obesity Market It Created E.l.f. Buys Hailey Bieber's Rhode Cosmetics Brand in $1 Billion Deal Much of NRG's earnings are of the noncash, mark-to-market variety, tied mainly to commodity prices, including natural gas and power. Those aren't visible on the face of NRG's income statement, but they are disclosed in the footnotes. NRG's unrealized, mark-to-market gains on derivatives last quarter were $512 million, equivalent to 52% of pretax profit. The quarter before that, they were $506 million, or 71% of pretax profit. The fluctuations also swerve the other way. For the third quarter of 2024, NRG reported a $1 billion pretax loss, driven by even bigger mark-to-market losses. Now NRG has agreed to buy many power plants from closely held LS Power, using new debt and its own richly valued stock to pay for them. NRG's shares rose 26% when the deal was announced on May 12 along with first-quarter earnings. It is now the S&P 500's top performer this year, up 73%, giving it about a $31 billion stock-market value. While the acquisition has excited Wall Street, it also highlights the fragility of NRG's current asset-light business model. NRG said the deal would double its generation capacity and immediately boost its earnings when it closes in early 2026. NRG said it would pay $6.4 billion of cash, plus stock that was worth $2.9 billion at the time of the announcement. Since then, the value of the stock NRG plans to issue has risen by almost $900 million. NRG had only $1.4 billion of cash as of March 31. Hence, it will need to borrow to fund the cash portion. But it is hard to evaluate what NRG is getting. NRG said it would assume $3.2 billion of net debt, but few other details are public because LS Power's financial statements aren't disclosed. A comparison of NRG and other power companies is instructive. NRG in its proxy identified its peer group as the 21 companies in the Philadelphia Utility Sector Index, which includes NextEra Energy and Duke Energy. NRG's net derivative assets were 61% of its book value as of March 31. The average for the peer group was less than 1%, according to a Wall Street Journal analysis. Property, plant and equipment represented 9% of NRG's total assets, compared with 72% for the peer group. Put another way, NRG, which isn't in the utilities index, has a much different profile than the companies that are. It looks more like a risky energy trader. Book value was a relative sliver at $2.1 billion, or 9% of assets, while the index's average ratio was 25%. NRG's tangible equity was negative, owing to large amounts of goodwill and other intangible assets from an earlier string of acquisitions. S&P and Moody's have junk credit ratings on NRG, while every company in the utilities index is investment-grade. Moody's in a May 15 report on NRG cited its 'opaque and volatile trading operation' and 'exposure to volatile energy commodities' among its credit risks. NRG has a highly valued stock, though. It trades for about 14 times book value and 24 times trailing earnings. The average for the index is about two times book and 21 times earnings. NRG often draws comparisons with Vistra, another junk-rated power company, and Constellation Energy, which is in the utility index. Both have hot stocks fueled by acquisitions. Vistra may be a closer match. It has negative tangible equity, and its shares trade for 24 times book value and 25 times trailing earnings. Like NRG, Vistra has a sizable derivatives book that is prone to volatility, but it is smaller than NRG's as a percentage of total assets and has a negative net value. Vistra also has more hard assets. Property, plant and equipment were 46% of total assets as of March 31. NRG says it uses derivatives to manage the commodity-price risk of its businesses. But it doesn't treat any of its derivatives as hedges under the accounting rules. That means the contracts are directional bets, mainly on commodity prices going one way or another. Changes in their value can have large impacts on quarterly earnings. Investors arguably shouldn't pay a multiple of earnings for mark-to-market gains such as those, which are volatile and unpredictable. The deal with LS Power is understandable, as it could add more hard assets to NRG's balance sheet. Still, there isn't much for investors to go on given the lack of details about LS Power's finances. And it isn't often that a company can announce that it is making a $9 billion acquisition and get almost an $8 billion pop in its stock-market value within a week. That leaves investors with an expensive stock in an opaque, highly levered company riding the AI wave. It could be a volatile ride. Write to Jonathan Weil at Trump Pledged 'No Tax on Social Security.' The Tax Bill Says Otherwise. We Made a Film With AI. You'll Be Blown Away—and Freaked Out. Elon Musk Tried to Block Sam Altman's Big AI Deal in the Middle East Nvidia's Business Is Booming Despite Being Shut Out of China General Motors CEO Defends Trump Auto Tariffs
Wall Street Journal
29-05-2025
- Business
- Wall Street Journal
NRG's Stock Is a Top Gainer. How Does It Really Make Money?
NRG Energy NRG -0.54%decrease; red down pointing triangle, once viewed as a boring retail energy supplier, suddenly is one of America's hottest stocks. Investors see a power producer expanding rapidly to tap surging demand driven by artificial intelligence. But NRG also is a large derivatives trader. It has volatile earnings, a weak balance sheet and in some ways resembles a commodities hedge fund that also owns power plants. About $5.2 billion of NRG's assets were derivative contracts as of March 31, compared with $2.2 billion of property, plant and equipment. Much of NRG's earnings are of the noncash, mark-to-market variety, tied mainly to commodity prices, including natural gas and power. Those aren't visible on the face of NRG's income statement, but they are disclosed in the footnotes. NRG's unrealized, mark-to-market gains on derivatives last quarter were $512 million, equivalent to 52% of pretax profit. The quarter before that they were $506 million, or 71% of pretax profit. The fluctuations also swerve the other way. For the third quarter of 2024, NRG reported a $1 billion pretax loss, driven by even bigger mark-to-market losses. Now NRG has agreed to buy many power plants from closely held LS Power, using new debt and its own richly valued stock to pay for them. NRG's shares rose 26% when the deal was announced on May 12 along with first-quarter earnings. It is now the S&P 500's top performer this year, up 73%, giving it about a $31 billion stock-market value. While the acquisition has excited Wall Street, it also highlights the fragility of NRG's current asset-light business model. NRG said the deal would double its generation capacity and immediately boost its earnings when it closes in early 2026. NRG said it would pay $6.4 billion of cash, plus stock that was worth $2.9 billion at the time of the announcement. Since then, the value of the stock NRG plans to issue has risen by almost $900 million. NRG had only $1.4 billion of cash as of March 31. Hence, it will need to borrow to fund the cash portion. But it is hard to evaluate what NRG is getting. NRG said it would assume $3.2 billion of net debt, but few other details are public because LS Power's financial statements aren't disclosed. A comparison of NRG and other power companies is instructive. NRG in its proxy identified its peer group as the 21 companies in the Philadelphia Utility Sector Index, which includes NextEra Energy NEE -1.22%decrease; red down pointing triangle and Duke Energy DUK -1.66%decrease; red down pointing triangle. NRG's net derivative assets were 61% of its book value as of March 31. The average for the peer group was less than 1%, according to a Wall Street Journal analysis. Property, plant and equipment represented 9% of NRG's total assets, compared with 72% for the peer group. Put another way, NRG, which isn't in the utilities index, has a much different profile than the companies that are. It looks more like a risky energy trader. Book value was a relative sliver at $2.1 billion, or 9% of assets, while the index's average ratio was 25%. NRG's tangible equity was negative, owing to large amounts of goodwill and other intangible assets from an earlier string of acquisitions. S&P and Moody's have junk credit ratings on NRG, while every company in the utilities index is investment-grade. Moody's in a May 15 report on NRG cited its 'opaque and volatile trading operation' and 'exposure to volatile energy commodities' among its credit risks. NRG has a highly valued stock, though. It trades for about 14 times book value and 24 times trailing earnings. The average for the index is about two times book and 21 times earnings. NRG often draws comparisons with Vistra VST -0.92%decrease; red down pointing triangle, another junk-rated power company, and Constellation Energy CEG -0.33%decrease; red down pointing triangle, which is in the utility index. Both have hot stocks fueled by acquisitions. Vistra may be a closer match. It has negative tangible equity, and its shares trade for 24 times book value and 25 times trailing earnings. Like NRG, Vistra has a sizable derivatives book that is prone to volatility, but it is smaller than NRG's as a percentage of total assets and has a negative net value. Vistra also has more hard assets. Property, plant and equipment were 46% of total assets as of March 31. NRG says it uses derivatives to manage the commodity-price risk of its businesses. But it doesn't treat any of its derivatives as hedges under the accounting rules. That means the contracts are directional bets, mainly on commodity prices going one way or another. Changes in their value can have large impacts on quarterly earnings. Investors arguably shouldn't pay a multiple of earnings for mark-to-market gains such as those, which are volatile and unpredictable. The deal with LS Power is understandable, as it could add more hard assets to NRG's balance sheet. Still, there isn't much for investors to go on given the lack of details about LS Power's finances. And it isn't often that a company can announce that it is making a $9 billion acquisition and get almost an $8 billion pop in its stock-market value within a week. That leaves investors with an expensive stock in an opaque, highly levered company riding the AI wave. It could be a volatile ride. Write to Jonathan Weil at
Yahoo
14-05-2025
- Business
- Yahoo
Why NRG Energy, Inc. (NRG) Soared Today
We recently published a list of . In this article, we are going to take a look at where NRG Energy, Inc. (NYSE:NRG) stands against other stocks that soared by double digits today. The stock market kicked off the trading week brimming with optimism after the US and China announced a tariff truce on each other's goods. The tech-heavy Nasdaq booked the largest gains among the three major indices, rallying 4.85 percent. The S&P 500 followed with a 3.26-percent increase, and the Dow Jones, with 2.81 percent. Over the weekend, the US and China reached a 90-day deal to lower tariffs on each other's imports. US taxes on Chinese imports will drop to 30 percent from 145 percent previously, while China's tariffs on US imports will drop to 10 percent from 125 percent earlier. Beyond the major indices, 10 companies finished the week stronger, booking double-digit gains during the day. In this article, we name Monday's 10 top performers and detail the reasons behind their strong performance. To come up with the list, we considered only the stocks with a $2-billion market capitalization and $5-million trading volume. Close up image of an engineer inspecting the control panel of a modern power plant. NRG Energy soared by 26.21 percent on Monday to end at $150.61 apiece following news that it will acquire LS Power's gas-fired power plants for $12 billion. According to the company, it inked a definitive agreement with LS Power for the acquisition of 18 natural gas-fired plants with 13 gigawatts of power capacity. NRG Energy, Inc. (NYSE:NRG) said it expects to complete the transaction in the first quarter of 2026. Upon completion, the acquisition will double the latter's overall generation capacity to 25 GW. Commenting on the deal, NRG Energy, Inc. (NYSE:NRG) CEO Larry Cohen said that the country 'is in the early stages of a power demand supercycle.' 'This acquisition transforms NRG's generation fleet and broadens our customized product offerings, enhancing our ability to bring the future of energy to millions of customers across the US,' he added. Overall, NRG ranks 1st on our list of stocks that soared by double digits today. While we acknowledge the potential of NRG as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than NRG but that trades at less than 5 times its earnings, check out our report about this cheapest AI stock. READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires. Disclosure: None. This article is originally published at Insider Monkey. Sign in to access your portfolio
Yahoo
13-05-2025
- Business
- Yahoo
NRG Energy to acquire LS Power's natural gas assets in $12bn deal
NRG Energy has entered a definitive agreement to acquire LS Power Equity Advisors' natural gas generation facilities and a commercial and industrial virtual power plant (C&I VPP) platform portfolio. The transaction includes a cash and common stock deal valued at approximately $12bn. This deal is poised to double NRG's generation capacity. The transaction's enterprise value comprises $6.4bn in cash consideration, $2.8bn in stock consideration to LS Power, $3.2bn of net debt assumed at closing and approximately $400m of the net present value of tax benefits generated by the transaction. LS Power will own around 11% of the pro forma NRG shares outstanding and has agreed to a six-month lock-up period on its equity ownership of NRG common stock. The assets include 18 natural gas-fired facilities across nine states, totalling around 13GW. The acquisition also includes CPower, a C&I VPP platform, enhancing NRG's presence in deregulated energy markets. NRG anticipates a compounded annual growth rate target increase for adjusted earnings per share to at least 14%, up from the current 10% target. Additionally, NRG plans to return approximately $9.1bn to shareholders through share repurchases and dividends over the next five years. NRG's acquisition of these assets, which are irreplicable and of high quality, will transform its generation fleet and enhance its ability to serve customers in the north-east and Texas markets. NRG is working towards maintaining a strong balance sheet and expects to achieve its target leverage ratio within 24–36 months after closing. The acquisition is slated for completion in the first quarter of 2026 (Q1 2026), subject to regulatory approvals. LS Power will retain around 10GW of electric generation capacity and its LS Power Grid platform, which includes more than 780 miles of high-voltage transmission lines. NRG chair, president and CEO said: 'The transaction is financially compelling as it strengthens our credit profile and turbocharges NRG's growth rate, while also supporting continued robust capital returns. We are in the early stages of a power demand supercycle, and we are excited to lead the way with reliable energy solutions that will drive considerable value for NRG and all of our stakeholders.' NRG's advisors for the transaction include Citi and Goldman Sachs, with committed financing provided by Citi and Goldman Sachs Bank USA. LS Power's financial advisors include Evercore, J.P. Morgan and Morgan Stanley, with Milbank and Willkie Farr & Gallagher as legal counsel. In March 2025, NRG Energy signed a definitive agreement to acquire six power plants in the US state of Texas from Rockland Capital for $560m. "NRG Energy to acquire LS Power's natural gas assets in $12bn deal" was originally created and published by Power Technology, a GlobalData owned brand. The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site.
Yahoo
13-05-2025
- Business
- Yahoo
NRG acquiring LS Power portfolio for nearly $10 billion to compete in 'power-demand supercycle' of data centers
Utility player NRG Energy will pay nearly $10 billion for 18 natural gas-fired power plants from LS Power in a move designed to prepare NRG for a domestic power market that's set to soar. The acquisition, which was announced May 12, essentially doubles NRG's gas power generation to help fuel the oncoming data center construction boom and to add enough quick-start power plants that help balance electric grids with supplies of intermittent renewable energy. 'We are in the early stages of a power-demand supercycle, and we are excited to lead the way with reliable energy solutions that will drive considerable value for NRG and all of our stakeholders,' said NRG chairman, president, and CEO Larry Coben in the announcement. Along with an overall stock market rebound on May 12, NRG shares spiked by nearly 25% in early trading. The deal includes a fleet of power plants scattered throughout the Northeast and Texas with about 13 gigawatts (GW) of combined power. The deal would essentially double NRG's power generation capacity to over 25 GW. One gigawatt can power roughly 800,000 homes per year. U.S. grid demand was basically flat and increasing 0.2% per year for more than 15 years as of 2023, according to S&P Global Commodities Research. Now, it's slated to rise 1.7% per year from 2024 to 2050—a seemingly subtle but sizable surge. In addition, NRG said it is acquiring LS-owned CPower, a virtual power plant platform with power generation and grid energy management systems. CPower has about 6 GW of capacity, representing more than 2,000 commercial and industrial customers. The cash-and-stock deal for $9.2 billion includes $6.4 billion in cash and $2.8 billion in stock. The assumption of debt and tax credits brings the total deal value to $12 billion, the companies said. The deal is expected to close in the first quarter of 2026. LS Power is expected to own roughly 11% of the pro forma NRG shares outstanding. But a portion of LS Power's shares will be held in a voting trust so that it will always control less than 10% of the overall voting rights of NRG stock. After the deal, LS Power will retain about 10 GW of power generation, including is renewable power and energy storage projects. On April 10, NRG just closes on a much smaller deal to acquire 738 megawatts of natural gas-fired power generation in Texas for $560 million from Rockland Capital. And, in late February, NRG launched a new joint venture with GE Vernova and Kiewit to organically build close to 5 GW of gas-fired power in Texas and the Northeast to meet data center and generative AI computing demand. This story was originally featured on
