NRG 4Q2015 Earnings Note

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Market Price (2/29/2016): $10.78/share; ST-Target: $21/share; NIV: $50/share

NRG: Change in strategy is a great start but still some work left

Mauricio Gutierrez and new management team didn’t disappoint. NRG looks to focus on debt repayment, eliminate eVgo and Home Solar, and roll-up GreenCo. We also agree with NRG’s decision to cut annual dividend to $0.12/share from $0.58/share. But we’d also like NRG has yet to disavow share buybacks, and we’d like NRG to officially and separately reestablish a customer-based marketing and trading business through a bankruptcy-remote sub with strong risk-management and focus on reducing its hedging position in lockstep with its leverage position. We’d like to see NRG roll-up NYLD. We continue to support NRG’s repowering and fuel conversion projects, and like that NRG is thinking ahead, but we don’t like NRG’s MT hedging for 2017/2018, although understandable. Otherwise, with realignment and repositioning of the business, we feel NRG is well prepared for upcoming commodity-price rebound. We also believe NRG may be preparing for another transformational operation to take advantage of the low commodity-price environment, which we think is very smart and prescient.

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