Report
Valens Research

NRG - Valens Credit Report - 2024 04 02

Credit markets are overstating NRG's credit risk with a YTW of 5.936 % relative to an Intrinsic YTW of 4.559% and a CDS of 145bps relative to an Intrinsic CDS of 35bps. Furthermore, Moody's is overstating the firm's fundamental credit risk, with its Ba1 credit rating two notches lower than Valens' IG4 (Baa2) credit rating.

Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. NRG's metrics should generally drive management to improve all three value drivers: margin expansion, asset utilization, and growth which could lead to
Uniform ROA expansion and increased cash flows available for obligations going forward. Additionally, most management members are material owners of NRG equity relative to their annual compensation, indicating they may be aligned with shareholders to pursue long-term value creation for the company.

Earnings Call Forensics™ of the firm's Q4 2023 earnings call (2/28/2024) highlights that management generated an excitement marker when saying commercial and industrial businesses should gravitate towards larger, reputable providers like
themselves in times of market tightness
Underlying
NRG Energy Inc.

NRG Energy is an energy company. The company produces and sells electricity and related products and services in primary power markets in the United States and Canada. The company sells energy, services, and sustainable products and services directly to retail customers under the names NRG, Reliant, Green Mountain Energy, Stream and XOOM Energy, as well as other brand names owned by the company The company's segments are: Retail, which includes retail energy, portable solar and battery products home services, and a variety of bundled products; and Generation, which includes plant operations, commercial operations, development, engineering and construction, asset management, energy services and other related functions.

Provider
Valens Research
Valens Research

In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:

  • GAAP and IFRS have failed to provide rules for reliable financial statement reporting
  • Stock analyst recommendations are not grounded in disciplined financial analysis
  • Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
  • Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available

We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.

  • Corporate credit ratings remain years behind the fundamental underpinnings of company performance
  • Stock analysts continue to make recommendations with deeply inherent biases
  • Research firms have failed to break down the walls between credit, equity, and macroeconomic research
  • The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming

The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.

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