NRG Energy and its competitors have rallied as natural gas sentiment has turned more positive, but the market is overlooking the $285 million decrease in capacity revenue at PJM Interconnection, a wholesale electricity market operator, and the potential for continued weakness in PJM, the firm contended, Barron's reports. PJM represents 33% of capacity.
"Deterioration in PJM is particularly negative for NRG as it looks to negotiate with the creditors of its ~9x 2017E net debt," UBS said in a note.
NRG Energy has nonetheless performed well recently due to natural gas bullishness, according to the firm.
But NRG Energy is less relevant for this thesis than its peers, as management "likens itself as a synthetic 3.3bcfe/day long position but ~16.5GW (40%) out of its ~43GW conventional generation portfolio sit in the FCF negative GenOn subsidiary which significantly reduces its gas optionality in our view," UBS noted.
Separately, TheStreet Ratings team rates the stock as a "hold" with a ratings score of C-.
NRG Energy's strengths such as its increase in net income, good cash flow from operations and growth in earnings per share are countered by weaknesses including generally higher debt management risk, disappointing return on equity and a generally disappointing performance in the stock itself.
You can view the full analysis from the report here: NRG
TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this article's author.