NRG Energy Earnings: Investors Should Monitor Synergies With Vivint

We are reaffirming our $37 fair value estimate for NRG Energy NRG after the company announced $646 million of adjusted EBITDA in the first quarter, up from $506 million in the year-ago quarter after adjusting for power plant retirements in 2022. We are reaffirming our no-moat rating, stable moat trend rating, and High Morningstar Uncertainty Rating.

The $5.2 billion Vivint acquisition closed March 10, resulting in $73 million, or 13%, of additional EBITDA in the first quarter. Management now expects adjusted EBITDA of $3.0 billion-$3.25 billion in 2023, including Vivint. This is in line with what we expected on a consolidated basis when NRG announced the deal in December.

We think investors should monitor NRG’s progress achieving the $400 million of run-rate cost synergies and cross-selling opportunities by 2025 that management identified when it announced the Vivint deal. This was a key part of making the deal value-neutral rather than value-dilutive for NRG based on the price it paid.

We forecast adding Vivint and management’s target deal synergies would put EBITDA near $3.5 billion in 2026, assuming little growth in NRG’s legacy business.

NRG’s legacy segments performed well during the first quarter, benefiting from lower retail energy supply costs that more than offset lower weather-related retail sales. We continue to expect retail business earnings will represent at least three fourths of NRG’s earnings on a full-year run-rate basis.

NRG increased the dividend 8%, in line with management’s 2023 capital allocation plan. The plan also includes $900 million of debt retirement and $347 million of share repurchases for the full year, pending $500 million of cash proceeds expected from generation asset sales.