NRG Energy Inc. (NRG)

Conclusion

NRG Energy is a United States energy and home services company. It sells retail electricity, operates generation assets and owns the Vivint smart home business. At a price of 97.40 USD on 2026-11-09, the market capitalisation is 20.47 billion USD and the enterprise value is 43.78 billion USD.

The verdict is overvalued. The fair value band runs from 43.15 to 64.73 USD with a midpoint of 53.94 USD, giving a margin of safety of -44.6% at the current price. The DCF gives 29.26 USD per share, and the fair value from historical multiples is 78.63 USD. The price-to-earnings ratio of 24.1 compares with a ten-year median of 19.5, and enterprise value to EBITDA of 13.9 compares with a median of 10.7. The reverse DCF implies growth of 32.2% a year, while revenue compounded at 27.6% over five years and free cash flow per share fell at 10.0% a year.

Three numbers support the case: revenue compounded at 27.6% over five years, EPS at 15.9%, and the share count fell at 4.2% a year. The weakest numbers are net debt to EBITDA of 7.4x, interest coverage of 1.40x and an Altman Z-score of 1.38, which sits in the distress zone. ROIC of 3.95% is also below a WACC of 7.04%.

Financial health

Financial health is red, because debt and coverage measures are all assessed as bad and liquidity is only neutral. Net debt to EBITDA is 7.4x, debt to equity is 4.83x and interest coverage is 1.40x. The current ratio of 0.97x and quick ratio of 0.37x leave little cushion for short-term obligations. The Altman Z-score is 1.38, in the distress zone. The Altman model was designed for manufacturers, so for a power producer and retailer the reading is indicative only. Insolvency risk: medium, about 4.8% by the estimate of the Ohlson model over one to two years. Revenue has fallen over the five years to the end of 2025 on the debt measure of -14.4%, so debt has not been driven by a growing top line.

Earnings quality

Earnings quality is yellow. Its strengths are the Beneish M-score of -2.61, which reads as unlikely to show manipulation, and the share count, which fell at 4.2% a year over five years. Free cash flow conversion is 41.0% on a trailing basis and 38.3% over five years, so most reported earnings do not turn into cash. The accrual ratio is -3.9%, meaning cash earnings exceed accounting earnings. Stock-based compensation is 0.43% of revenue, and free cash flow after it is 204 million USD. The Piotroski score is 6 of 9. Over the last eight quarters the company beat estimates five times and missed three times, with an average surprise of 16.1%. Next-year EPS estimates were cut by 5.8% over 90 days, with five downgrades and no upgrades in the last 30 days.

Profitability

Profitability is red. Gross margin is 19.4% against a ten-year median of 24.1%, operating margin 5.75% against 7.51%, and net margin 2.56% against 3.35%. ROIC is 3.95% against a WACC of 7.04%, a ROIC minus WACC of -3.1%, which the model labels as destroying value. The five-year median ROIC was 12.6%. Return on equity of 17.5% is flattered by leverage: the DuPont split shows a net margin of 2.81%, asset turnover of 1.05x and an equity multiplier of 17.3x. Operating margin stability is 1.02, so margins have been steady, but at a low level.

Growth

Growth is green, but the colour depends on the longer record. Revenue compounded at -0.9% over three years, at 27.6% over five years and at 9.6% over ten years. EPS compounded at -5.7% over three years and at 15.9% over five years. Free cash flow per share fell at 10.0% a year over five years but rose at 47.5% a year over ten. Revenue grew in six of the ten comparable years. Analysts expect next-year EPS growth of 19.5%, although estimates have been falling, so this forecast carries doubt.

Valuation

Valuation is red. Against ten-year medians, the price-to-earnings ratio of 24.1 is a premium of 23.9% to a median of 19.5, and enterprise value to EBITDA of 13.9 is a premium of 29.2% to a median of 10.7. Price to free cash flow of 58.8 is a premium of 469.4% to a median of 10.3. Price to sales of 0.62 is a discount of 30.7% to a median of 0.89, and price to book of 4.22 is a discount of 13.8% to a median of 4.89. The DCF gives 29.26 USD per share at a discount rate of 10.9%, with 54.6% of the value in the terminal value. The fair value is an order of magnitude built on fixed assumptions, including a 5% equity risk premium and capped growth, not a price target. The reverse DCF implies growth of 32.2% against revenue growth of 27.6% and free cash flow per share growth of -10.0%. The dividend yield is 2.14% and the payout on free cash flow is 126.2%.

Risks

The main weakness is leverage. Net debt of 7.4 times EBITDA and interest coverage of 1.40x mean that a modest fall in operating earnings would leave interest payments hard to cover. A current ratio below one means short-term obligations exceed current assets. ROIC below WACC means that growth at current returns does not create value. Only 41.0% of earnings convert to free cash flow, and the dividend payout of 126.2% of free cash flow is not covered by cash. No values are missing from the data. This analysis has limits: it has no debt maturity schedule, so refinancing risk cannot be judged, and no revenue by segment, so the mix between retail, generation and Vivint cannot be assessed. The Altman model was designed for manufacturers, so its distress reading is only indicative.