NRG Updates Financial Outlook

NRG Energy Inc. ( NRG - Analyst Report ) announced its preliminary Earnings before Interest, Tax, Depreciation and Amortization ("EBITDA") and Free Cash Flow before Growth Investments outlook following the closure of its GenOn acquisition on Dec 14, 2012.

For 2013, NRG Energy maintained its EBITDA guidance in the range of $2,535 million to $2,735 million of which wholesale is expected to bring in around $1,685 million to $1,800 million while retail’s contribution is estimated to be in the band $650 million to $725 million. NRG Energy anticipates lucrative returns from its various solar programs and expects the EBITDA contribution to be between $200 million and $210 million.

For 2014, NRG Energy estimates EBITDA in the range $2,700 million to $2,900 million. Wholesale is anticipated to fetch around $1,705 million to $1,820 million. The retail business is expected to pitch in about $675 million to $750 million while solar programs offerings are expected in the range of $320 million to $330 million.

The company’s Free Cash Flow before growth investments is anticipated in the range of $900 million to $1,100 million both in 2013 and 2014.

The revision in guidance includes an updated outlook on the company’s hedging position, expenditures of the joint portfolio post GenOn merger and an estimated decline in environmental costs. We note that the prior guidance was made on a standalone basis during the announcement of the GenOn merger deal in Jul 2012.

So the new guidance reflects the benefit the company will accrue from the merger in terms of estimated increase in EBITDA in 2014 as well as rise in Free Cash Flow before Growth Investments in 2013 and 2014.

The GenOn purchase boosted the company’s total generation portfolio to roughly 47,000 megawatts. We believe the commencement of the Tucson Solar Unit would offer a major thrust to the company’s renewable program especially in the long term given the U.S. government’s decision to step up green energy production in the power sector.

Natural gas prices are also projected to kick back and move upwards in the near term which will substantially benefit NRG Energy’s fossil fuel business. Moreover, the coal market is likely to make a positive comeback and will maintain the momentum till 2017. This will further act as a potential growth catalyst for NRG Energy. Currently, NRG Energy retains a Zacks Rank #2 (Buy).

Other companies in the energy sector who have recently unveiled operational and financial outlooks are Peabody Energy Corp. ( BTU - Analyst Report ) , CONSOL Energy Inc. ( CNX - Analyst Report ) , Stone Energy Corp. ( SGY - Analyst Report ) and Anadarko Petroleum Corporation ( APC - Analyst Report ) . The former two companies expect a soft start to 2013 with both providing unfavorable production outlook owing to idling of coal mines. The latter two however, are expected to ride high on their exploration and production programs.

Headquartered in Princeton, New Jersey, NRG Energy along with its subsidiaries operates as an integrated wholesale power generation and retail electricity company.