We recently compiled a list of 8 Most Profitable Utility Stocks To Invest In. In this article, we will look at where NRG Energy (NYSE:NRG) ranks among the most profitable utility stocks.
Utilities to Experience Significant Growth
According to Research and Markets, the global utility market was valued at $6.89 trillion in 2024 and is projected to reach $8.83 trillion by 2028, growing at a CAGR of 6.4%. The market’s expansion is expected to be driven by several factors, including population growth, economic development, investments in renewable energy, and a rise in utility mergers and acquisitions. Key trends in the sector include a focus on Power Purchase Agreements (PPAs), increased funding for solar energy battery storage, and investments in technologies such as smart grids and smart meters.
A Stable and Secure Investment
Keith Meister, Chief Investment Officer at Corvex Management, in an interview on CNBC, shared his perspective on the utility sector. Meister pointed out that utilities are well-regulated businesses that have historically experienced flat electricity load growth in the U.S. from 2013 to 2023. However, new technologies and regulatory changes, such as the Inflation Reduction Act (I.R.A.) and advances in Artificial Intelligence (A.I.), have boosted the sector’s projected growth rate to 3%. This growth is driven by increasing electricity demand, particularly as renewable energy sources become more widely adopted and the need for power to support technological advancements rises.
Meister believes the U.S. has created strong capital markets and incentives for investment in the utility sector, making it a favorable investment in the current cycle. He noted that a few years ago, utilities were trading at 20 times the market, but now they are more reasonably priced at two times the market. This drop in valuation makes utilities an appealing investment opportunity, especially considering their guaranteed income and solid dividends.
Meister highlighted the sector’s appealing characteristics, such as guaranteed income and good dividends, which make utilities a strong investment option. Investors don’t need to rely on multiple expansions to achieve 10% growth from these stocks, and any additional earnings growth would be a bonus. In a market where growth and returns are increasingly uncertain, utilities offer a relatively stable and secure investment opportunity.
The global utilities market is poised for significant growth, driven by a combination of factors including population growth, economic development, and increasing investments in renewable energy. The global utilities market is an attractive opportunity for investors looking for a stable income and return on investment.
Our Methodology
To compile our list of the 8 most profitable utility stocks to invest in, we used the Finviz and Yahoo stock screeners to compile an initial list of the 20 largest utility companies by market cap. From that list, we narrowed our choices to companies with positive TTM net income and 5-year net income growth informed by reputable sources, including SeekingAlpha, which provided insights into 5-year growth rates, and Macrotrends, which supplied information on trailing twelve-month (TTM) net income. Then we sorted the stocks in ascending order, according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
NRG Energy (NYSE:NRG)
Number of Hedge Fund Holders: 56
TTM Net Income: $2.00 Billion
5-Year Net Income CAGR: 28.15%
NRG Energy (NYSE:NRG) is an integrated power company based in the U.S. that offers a wide range of energy solutions to customers. The company operates a diverse mix of generation facilities, including solar, wind, and natural gas.
NRG Energy’s (NYSE:NRG) Q2 earnings report was a significant positive catalyst for the company, with consolidated revenue growing 4.8% year-over-year to $6.58 billion. The strong performance was driven by growth in the East and West regions, which reported high single-digit growth in sales, and the Texas region, which continued to show robust performance with volume growth and subscriber count increases. The company’s adjusted EBITDA margin also expanded by 120 basis points to a record 14.2%, driven by lower realized retail supply costs and strong sales across Texas. The company’s Vivint Smart Home business, a smart home company is also a major EBITDA contributor and is expected to continue its growth trajectory, driven by increasing demand for smart home solutions and a growing subscriber base.
NRG Energy (NYSE:NRG) has shown significant signs of recovery, driven by strong demand in Texas and improvement in the East and West regions. Looking ahead, NRG Energy (NYSE:NRG) is well-positioned to benefit from electrification trends driven by increasing data center demand and on-shoring activities. The company has made progress on its strategic priorities, including submitting brownfield development projects to the Texas Energy Fund, which involves repurposing previously used industrial sites for new energy development.
NRG Energy (NYSE:NRG) is expected to increase its earnings by 100% this year. Additionally, the Electric Reliability Council of Texas (ERCOT), an independent organization that manages the flow of electric power across Texas, is anticipating substantial load growth in the coming years, projecting over 60 gigawatts of growth through 2030. This growth is expected to be driven by on-shoring, data centers, and other large-load customers which will provide a long-term demand growth opportunity for NRG Energy (NYSE:NRG).
Overall NRG ranks 3rd on our list of most profitable utility stocks to invest in. While we acknowledge the potential of NRG as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NRG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure. None. This article is originally published on Insider Monkey.