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NRG Energy Inc. (NRG - Analyst Report) has provided full-year 2013 and 2014 free cash flow (FCF) and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) guidance.

Full-Year 2013 and 2014 Guidance

NRG Energy has increased its full-year 2013 FCF (before growth investments) guidance to $1,050–$1,250 million from the earlier projection of $1,000–$1,200 million. The company reaffirmed its adjusted EBITDA guidance for full-year 2013.

NRG Energy has raised its full-year 2014 FCF (before growth investments) guidance in the range of $1,100–$1,300 million from the previous estimate of $900–$1,100 million. The company also raised its adjusted EBITDA projection by $90 million to $2,850–$3,050 million.

Our Take

Upward revision in guidance is primarily driven by positive impacts from the GenOn acquisition in terms of enhancement in operational efficiencies and cost synergies.

NRG Energy completed its GenOn-acquisition in Dec 2012 and has already benefited from it in first-quarter 2013 through an increased realized gross margin in the company’s East segment. In 2013, the company expects to realize $150 million of cost and operational synergies from this merger.

NRG Energy also received contract extensions from its clients - Houston Technology Center and Washington-based St. Tammany Electric and Claiborne Electric cooperatives to provide power services. In addition, the company inked two new long-term power supply commitments with Comcast and the city of Houston. We believe these agreements will guarantee a stable earnings flow.

We appreciate NRG Energy’s initiative to curb emission. It is evident from the company’s continued pro-environment work on the Big Cajun generating facility in Louisiana. The company has already commenced operations at its Borrego I Solar Generating Station and Avra Valley Solar Generating Station.

In addition, NRG Energy’s important projects – Ivanpah, Parish Peaker, Dover and El Segundo Power Generating Station – are progressing at a faster pace. We believe the timely implementation of fossil-fuel and renewable energy-based programs along with acquiring new assets and gathering service contracts would benefit the company’s future performance.

However, fuel price volatility and stringent regulatory compliances are likely to pose challenges to NRG Energy’s near-term performance.

NRG Energy currently has a Zacks Rank #3 (Hold). The other stocks in the industry that are worth considering include CPFL Energia S.A. (CPL - Snapshot Report) and Companhia Paranaense de Energia (ELP - Analyst Report) with a Zacks Rank #1 (Strong Buy), and Integrys Energy Group, Inc. (TEG - Analyst Report) with a Zacks Rank #2 (Buy).

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