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Market Price (8/3/2017): $24.17/share; ST-Target: $30/share; NIV: $40/share
Completed major overhaul of model to eliminate GenOn, GenOn debt, incorporate Retail gas business, and flattened out our commodity price curve. Net result is that estimates flattened but our NIV/share remains at some $40/share. Also, raising our ST-Target to $30/share from $22/share. NRG has done a great job of realigning its strategy starting with GenOn and moving-on to its B/S management, and now its strategic overhaul. We believe these are all the right moves, and we expect that these will translate into further upside for NRG. With new strategy, we’d also expect that NRG can reduce its hedging exposure but NRG has yet to disavow share buybacks. We’d still like NRG to officially and separately reestablish customer-based marketing and trading business through bankruptcy-remote sub with strong, consistent and vigorously enforced risk-management policies. We believe that NRG will sell NYLD with the rest of its renewable portfolio and believe that NRG would be successful without both. We look for NRG to aggressively expand its Retail business, which would also allow it to reduce hedging. We look for continued modest recovery in commodity fundamentals and macro-economic tail wind to pick-up.