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Why NRG Energy Inc.’s Stock Rallied Nearly 11% in August

By Matthew DiLallo - Sep 6, 2018 at 2:01PM

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The utility surprised investors last month.

What happened

Shares of NRG Energy Inc. (NRG 1.24%) rose 10.9% in August, buoyed by its second-quarter results and an analyst upgrade.

So what

"Our business performed exceptionally well during the second quarter," stated CEO Mauricio Gutierrez in the company's earnings press release. Driving that view is that income from continuing operations rose from $99 million in the year-ago period to $121 million in this year's second quarter. Powering the company's improvement was its retail segment, where adjusted EBITDA came in at $298 million, which was $94 million higher than the second quarter of last year. The company's generation business also delivered stronger results as adjusted EBITDA rose $45 million to $197 million. Those dual fuels enabled the company to reaffirm its full-year outlook for adjusted EBITDA between $2.8 billion to $3 billion.

A power-generating station at night.

Image source: Getty Images.

Those results also led analysts at Citi to upgrade the stock from neutral to buy while increasing the bank's price target from $38 to $33 per share. That upgrade is noteworthy since the bank had just downgraded shares from buy to neutral in late July due to valuation. However, in a research note titled "We were wrong. Story stronger," the bank boosted its earnings forecast for NRG due to the strength of its business model, which it demonstrated in its second-quarter results.

Now what

NRG continues to turn around its business by cutting costs and selling noncore assets to improve its underlying profitability. The company took another step forward on that strategy this month by closing the sale of its renewable platform. That will give it the funds to continue investing in growth and buying back its stock, which could provide shares with the power to head even higher in the near term.

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