Long-established in the Utilities - Independent Power Producers industry, NRG Energy Inc (NRG, Financial) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 4.02%, juxtaposed with a three-month change of 37.99%. However, fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of NRG Energy Inc.
What Is the GF Score?
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 3/10
- Profitability rank: 6/10
- Growth rank: 8/10
- GF Value rank: 1/10
- Momentum rank: 6/10
Based on the above method, GuruFocus assigned NRG Energy Inc the GF Score of 69 out of 100, which signals poor future outperformance potential.
Understanding NRG Energy Inc's Business
NRG Energy Inc, with a market cap of $15.32 billion and sales of $28.82 billion, is one of the largest retail energy providers in the US, serving 6 million customers. The company's recent acquisition of Vivint Smart Home in 2023 added 2 million home services customers to its portfolio. NRG Energy Inc is also a significant player in the US independent power production sector, boasting 13 gigawatts of coal, gas, and oil power generation capacity, primarily in Texas. Having emerged from Chapter 11 bankruptcy as a stand-alone entity in December 2003, NRG Energy Inc has a history of resilience and transformation.
Financial Strength Breakdown
NRG Energy Inc's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 0 positions it worse than 0% of 324 companies in the Utilities - Independent Power Producers industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. The esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Score is just 1.6, which is below the distress zone of 1.81, suggesting that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.05 indicates a struggle in handling existing debt levels.
The company's debt-to-equity ratio is 3.78, which is worse than 91.41% of 384 companies in the Utilities - Independent Power Producers industry. A high debt-to-equity ratio suggests over-reliance on borrowing and vulnerability to market fluctuations. Furthermore, the company's debt-to-Ebitda ratio is 5.86, which is above Joel Tillinghast's warning level of 4 and is worse than 60.49% of 329 companies in the industry. Tillinghast warns that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Next Steps
Considering NRG Energy Inc's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. The company's financial health appears to be on shaky ground, with several indicators pointing towards potential distress. Value investors may need to weigh these factors heavily when considering NRG Energy Inc as part of their investment portfolio. For those seeking more robust investment opportunities, GuruFocus Premium members can explore companies with strong GF Scores using the GF Score Screen.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
