NRG 2Q2016 Earnings Note

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Market Price (8/9/2016): $12.83/share; ST-Target: $19/share; NIV: $58/share

Regressing in some ways, remaining stubborn & progressing in others

Moving ST-Target to $19 and NIV goes to $58 from $30 and $66, respectively. We feel that there is upside coming for commodity fundamentals but the market has driven down the stock so much we felt we had little choice but to reduce our ST-Target. We are less than thrilled about the potential for headline risk surrounding the potential financial distress of GenOn, but we look for a positive outcome. NEE’s acquisition of Oncor bodes ill for power economics in TX, as we fear NEE will accelerate wind transmission projects in TX. We like that NRG is paying down debt and refinanced some $5.8B of debt due in 2018 to later maturities. Given strong potential for upside, we’re opposed to high level of hedging, especially in 2018 & 2019. And, NRG has yet to disavow share buybacks, and we’d still like NRG to officially and separately reestablish a customer-based marketing and trading business through a bankruptcy-remote sub with strong, consistent and vigorously enforced risk-management policies. NRG needs to roll-up NYLD, in our minds, before NRG runs out of drop-down options.

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