Yahoo Finance Will the High Upside Offered by Merchant Players Offset the Risk?
Is Gas Price Revival the Key to NRG Energy's Sustained Recovery?
Market performance
Despite posting pitiful fourth quarter results and dividend trimming, NRG Energy (NRG) has soared with strong volatility so far this year. Since the beginning of 2016, it has managed to rise 13%. The gain was consistent with the utilities (XLU) sector. Last year, NRG Energy corrected more than 65%, a recovery of what had been triggered by its direct exposure to natural gas. Peer merchant power players Dynegy (DYN) and Calpine (CPN) also corrected in the range of 40%–50%.
The recent rally in merchant generators doesn’t lessen any risk for investors. The poor outlook for natural gas (UNG) prices and earnings volatility may weigh on stock movements of these merchant players this year.
Price targets
High risk is compensated by high rewards. Wall Street analysts are expecting a huge upside of ~37% for NRG Energy in the next year. They’re forecasting a price target of $17.77 against its current market price of $13.
Of the 16 analysts tracking NRG Energy, 11 recommend a “buy,” while three recommend a “hold.” One analyst has a “sell” rating for NRG Energy as of March 24, 2016.
The target price of $17.77 is the median price target of analysts’ consensus. A few analysts are estimating a supernatural upside of 130% in one year with a price target of $30.
Calpine (CPN) and Dynegy (DYN) have estimated upsides of 41% and 68%, respectively. As of March 24, 2016, CPN is trading at $14, while DYN is at $13.28. PPL’s (PPL) spin-off Talen Energy (TLN) has a relatively smaller possible gain in the next one year. It has a price target of $8.60, which implies an upside of 5% with its current price of $8.20.
In the final part of our series, we’ll look at the natural gas price rebound and whether it could revive NRG.
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