Wall Street is almost ceaselessly weird. Sometimes the Street will smack down a strong company by a double-digit amount because earnings missed expectations by a few pennies. Other times it will happily overlook near-term shortfalls because it has bought into the long-term term story hook, line, and sinker. Such would seem to be the case at NRG Energy
Results for this independent power producer continue to be a little unusual. Revenue nearly tripled from the year-ago quarter and operating income was up nearly tenfold, but adjusted EBITDA is what gets the attention. To that end, adjusted EBITDA was up 205%, with underlying growth in the "classic" business of about 17%. Keep in mind that with so much in the way of contract amortization, mark-to-market adjustments, and various other items and reversals, earnings per share here is a different animal than for a utility like Duke Energy
Despite those sometimes-confusing differences, I'd still encourage investors to take the time to get to understand independent power producers like NRG, Mirant
In addition, the recent heat wave has highlighted the fact that there are areas of the country that could do with more power capacity. Now some may be worried that NRG's capacity expansions will lower pricing and returns to unacceptable levels, particularly in Texas, where TXU
Of course, there's no such thing as a risk-free opportunity. In particular, there's the risk that gas prices (which generally determine power rates in most markets) could fall, but coal prices (which provide the cheapest source of power) could also rise and hurt profitability. Nevertheless, I'd bet on an improving energy market for the next few years, so there's enough potential here to merit a second look.
For more powerful Foolishness:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).