NRG Energy Lowers Guidance - Analyst Blog

Energy generation company NRG Energy Inc. (NRG) announced a downward revision of its 2011 guidance due to the exclusion of 3,884 megawatts (MW) of gas assets in California and Maine from its generation fleet. The exclusion was due to the rejection by Dynegy Inc.'s (DYN) shareholders of Blackstone Group L.P.'s (BX) buyout offer, a portion of which was to be bought by NRG Energy.

The Blackstone buyout offer included a separate agreement by which a portion of Dynergy generation assets were to be sold to NRG Energy. The rejection of the buyout offer by Dynegy shareholders is a set back for NRG Energy as the company was planning to increase its presence in California.

As a consequence, NRG Energy lowered its EBITDA guidance for 2011 to a range of $1,750 million to $1,950 million from the previous range of $1,900 million to $2,100 million. The company lowered its expectation for cash flow from operation for 2011 to the range of $1,150 million to $1,350 million from $1,300 million to $1,500 million earlier.

The company guided down its free cash flow before growth investments for 2011 to a range of $825 to $1,025 million from a band of $950 million to $1,150 million. The free cash expectation for 2011 was lowered to the range of $425 million to $625 million from the previous range of $550 million to $750 million.

During the third quarter 2010, the company entered into agreements to acquire certain power generation assets and companies, aiming to enhance its power generation portfolio. We expect NRG Energy to carry on with its investments in lucrative markets, thereby overcoming the temporary setback and ensuring future growth of the company.

The adjusted earnings per share of NRG Energy at the end of third-quarter 2010 were 87 cents compared with $1.02 in the year-ago comparable period. The Zacks Consensus Estimates for fourth quarter 2010, fiscal year 2010 and fiscal year 2011 are 30 cents per share, $2.61 per share and $1.13 per share, respectively.

NRG Energy's major peers are The AES Corporation (AES) and Calpine Corp. (CPN). On a competitive landscape, the company's net margin fared better than its peers in the trailing twelve months.

NRG Energy currently retains a Zacks #3 Rank (short-term Hold rating).

Based in Princeton, New Jersey, NRG Energy Inc. operates as a wholesale power generation company. The company is also involved in trade of fuel and transportation services, and trade of energy, capacity, and related products in the United States and internationally.

 
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