by Debra Fiakas CFA
New Jersey-based NRG Energy, Inc. (NRG: NYSE) NRG serves about 2.8 million customers in the northeastern U.S. with electricity generated from a mix of conventional and renewable power sources – 95 fossil fuel and nuclear power plants, 14 utility-scale solar power plants, and 35 wind farms. It has been good business for NRG, raking in $16.2 billion in total sales in the twelve months ending March 2015. NRG converted $1.4 billion of those sales to operating cash. That helps support a dividend payout policy that will put $0.58 per share in holders’ pockets next year.
NRG wants to be more than the ordinary electric utility, powering lights and appliances. The company is trying to serve electric vehicle owners with its EVgo in-home charging units. NRG has also set up a network of stations for away-from-home charging called EVgo Freedom Stations. The company claims ‘hundreds” of stations and that it “continues to expand nationally.” Some are located along major highways, but most are in parking lots adjacent to major retailers.
To establish its footprint in the electric vehicle charging market, NRG is offering free charges at its Freedom Stations to owners of Nissan LEAF electric cars. The company also provides a selection of charging plans to win loyalty from electric car owners. Its pitch for in-home charging units is pinned to a promise of no up-front costs and payment plan choices to fit the car owner’s budget.
For conservative investors who cannot stomach the risks inherent in the small, early-stage car charging companies described in the last post, NRG presents an interesting alternative. Of course, a stake in NRG is really a play on electricity generation and distribution and not a pure play on electric car charging. However, as garages become increasingly homes to electric vehicles, the growth opportunity presented to electric utilities cannot be overlooked. With the EVgo brand, NRG seems to have a head start in capturing the electric car charging opportunity.
NRG will not be a cheap play at least in terms of price-to-earnings multiples. The stock is currently trading at 65.4 times the consensus estimate for 2016. However, there appears to be quite a bit of noise in EPS. Thus multiples of assets or cash earnings might be more helpful. It is also worthwhile noting that NRG has been in a slump in recent weeks and the stock looks enticingly oversold near its 52-week low.
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.
Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.