Intrinsic value of NRG Energy - NRG

Previous Close

$24.11

  Intrinsic Value

$1.11

stock screener

  Rating & Target

str. sell

-95%

  Value-price divergence*

-92%

Previous close

$24.11

 
Intrinsic value

$1.11

 
Up/down potential

-95%

 
Rating

str. sell

 
Value-price divergence*

-92%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of NRG stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 7.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -15.83
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  12,351
  12,598
  12,888
  13,219
  13,591
  14,003
  14,455
  14,947
  15,480
  16,054
  16,670
  17,329
  18,033
  18,782
  19,578
  20,422
  21,317
  22,264
  23,266
  24,325
  25,442
  26,622
  27,865
  29,176
  30,558
  32,012
  33,544
  35,156
  36,853
  38,637
  40,515
Variable operating expenses, $m
 
  16,049
  16,416
  16,836
  17,308
  17,831
  18,404
  19,029
  19,705
  20,433
  21,215
  21,985
  22,877
  23,827
  24,837
  25,908
  27,044
  28,245
  29,516
  30,859
  32,277
  33,773
  35,351
  37,014
  38,767
  40,612
  42,555
  44,601
  46,753
  49,017
  51,399
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  12,234
  16,049
  16,416
  16,836
  17,308
  17,831
  18,404
  19,029
  19,705
  20,433
  21,215
  21,985
  22,877
  23,827
  24,837
  25,908
  27,044
  28,245
  29,516
  30,859
  32,277
  33,773
  35,351
  37,014
  38,767
  40,612
  42,555
  44,601
  46,753
  49,017
  51,399
Operating income, $m
  117
  -3,451
  -3,528
  -3,617
  -3,717
  -3,828
  -3,949
  -4,082
  -4,225
  -4,379
  -4,545
  -4,655
  -4,844
  -5,046
  -5,259
  -5,486
  -5,727
  -5,981
  -6,250
  -6,535
  -6,835
  -7,152
  -7,486
  -7,838
  -8,209
  -8,600
  -9,011
  -9,444
  -9,900
  -10,380
  -10,884
EBITDA, $m
  1,575
  -1,953
  -1,998
  -2,049
  -2,107
  -2,171
  -2,241
  -2,317
  -2,400
  -2,489
  -2,584
  -2,686
  -2,795
  -2,911
  -3,035
  -3,166
  -3,304
  -3,451
  -3,606
  -3,771
  -3,944
  -4,127
  -4,319
  -4,523
  -4,737
  -4,962
  -5,200
  -5,450
  -5,713
  -5,989
  -6,280
Interest expense (income), $m
  1,106
  1,096
  1,070
  1,106
  1,148
  1,195
  1,247
  1,304
  1,366
  1,433
  1,506
  1,583
  1,666
  1,755
  1,849
  1,950
  2,056
  2,169
  2,288
  2,415
  2,548
  2,689
  2,837
  2,994
  3,159
  3,334
  3,517
  3,710
  3,913
  4,127
  4,352
Earnings before tax, $m
  -875
  -4,546
  -4,598
  -4,724
  -4,865
  -5,023
  -5,196
  -5,386
  -5,591
  -5,812
  -6,050
  -6,239
  -6,511
  -6,800
  -7,109
  -7,436
  -7,783
  -8,150
  -8,539
  -8,949
  -9,383
  -9,841
  -10,323
  -10,832
  -11,368
  -11,933
  -12,528
  -13,154
  -13,813
  -14,507
  -15,236
Tax expense, $m
  16
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -774
  -4,546
  -4,598
  -4,724
  -4,865
  -5,023
  -5,196
  -5,386
  -5,591
  -5,812
  -6,050
  -6,239
  -6,511
  -6,800
  -7,109
  -7,436
  -7,783
  -8,150
  -8,539
  -8,949
  -9,383
  -9,841
  -10,323
  -10,832
  -11,368
  -11,933
  -12,528
  -13,154
  -13,813
  -14,507
  -15,236

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,973
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  30,355
  30,953
  31,665
  32,479
  33,393
  34,405
  35,516
  36,725
  38,035
  39,445
  40,959
  42,579
  44,307
  46,147
  48,102
  50,177
  52,376
  54,704
  57,165
  59,766
  62,512
  65,410
  68,465
  71,686
  75,080
  78,654
  82,418
  86,379
  90,547
  94,932
  99,545
Adjusted assets (=assets-cash), $m
  28,382
  30,953
  31,665
  32,479
  33,393
  34,405
  35,516
  36,725
  38,035
  39,445
  40,959
  42,579
  44,307
  46,147
  48,102
  50,177
  52,376
  54,704
  57,165
  59,766
  62,512
  65,410
  68,465
  71,686
  75,080
  78,654
  82,418
  86,379
  90,547
  94,932
  99,545
Revenue / Adjusted assets
  0.435
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
Average production assets, $m
  20,495
  20,900
  21,381
  21,930
  22,547
  23,231
  23,981
  24,797
  25,682
  26,634
  27,656
  28,750
  29,916
  31,159
  32,479
  33,880
  35,365
  36,937
  38,599
  40,355
  42,209
  44,165
  46,229
  48,404
  50,695
  53,108
  55,650
  58,324
  61,139
  64,100
  67,214
Working capital, $m
  2,013
  1,285
  1,315
  1,348
  1,386
  1,428
  1,474
  1,525
  1,579
  1,638
  1,700
  1,768
  1,839
  1,916
  1,997
  2,083
  2,174
  2,271
  2,373
  2,481
  2,595
  2,715
  2,842
  2,976
  3,117
  3,265
  3,421
  3,586
  3,759
  3,941
  4,133
Total debt, $m
  19,226
  18,770
  19,411
  20,143
  20,965
  21,877
  22,876
  23,965
  25,143
  26,413
  27,775
  29,233
  30,788
  32,444
  34,204
  36,071
  38,050
  40,145
  42,361
  44,701
  47,173
  49,781
  52,531
  55,430
  58,484
  61,701
  65,088
  68,653
  72,404
  76,351
  80,502
Total liabilities, $m
  28,314
  27,858
  28,499
  29,231
  30,053
  30,965
  31,964
  33,053
  34,231
  35,501
  36,863
  38,321
  39,876
  41,532
  43,292
  45,159
  47,138
  49,233
  51,449
  53,789
  56,261
  58,869
  61,619
  64,518
  67,572
  70,789
  74,176
  77,741
  81,492
  85,439
  89,590
Total equity, $m
  2,041
  3,095
  3,167
  3,248
  3,339
  3,441
  3,552
  3,673
  3,803
  3,945
  4,096
  4,258
  4,431
  4,615
  4,810
  5,018
  5,238
  5,470
  5,717
  5,977
  6,251
  6,541
  6,847
  7,169
  7,508
  7,865
  8,242
  8,638
  9,055
  9,493
  9,954
Total liabilities and equity, $m
  30,355
  30,953
  31,666
  32,479
  33,392
  34,406
  35,516
  36,726
  38,034
  39,446
  40,959
  42,579
  44,307
  46,147
  48,102
  50,177
  52,376
  54,703
  57,166
  59,766
  62,512
  65,410
  68,466
  71,687
  75,080
  78,654
  82,418
  86,379
  90,547
  94,932
  99,544
Debt-to-equity ratio
  9.420
  6.060
  6.130
  6.200
  6.280
  6.360
  6.440
  6.530
  6.610
  6.700
  6.780
  6.870
  6.950
  7.030
  7.110
  7.190
  7.260
  7.340
  7.410
  7.480
  7.550
  7.610
  7.670
  7.730
  7.790
  7.840
  7.900
  7.950
  8.000
  8.040
  8.090
Adjusted equity ratio
  0.002
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -774
  -4,546
  -4,598
  -4,724
  -4,865
  -5,023
  -5,196
  -5,386
  -5,591
  -5,812
  -6,050
  -6,239
  -6,511
  -6,800
  -7,109
  -7,436
  -7,783
  -8,150
  -8,539
  -8,949
  -9,383
  -9,841
  -10,323
  -10,832
  -11,368
  -11,933
  -12,528
  -13,154
  -13,813
  -14,507
  -15,236
Depreciation, amort., depletion, $m
  1,458
  1,498
  1,531
  1,568
  1,611
  1,657
  1,709
  1,765
  1,825
  1,890
  1,960
  1,969
  2,049
  2,134
  2,225
  2,321
  2,422
  2,530
  2,644
  2,764
  2,891
  3,025
  3,166
  3,315
  3,472
  3,638
  3,812
  3,995
  4,188
  4,390
  4,604
Funds from operations, $m
  1,997
  -3,049
  -3,068
  -3,155
  -3,255
  -3,366
  -3,488
  -3,621
  -3,766
  -3,922
  -4,090
  -4,269
  -4,462
  -4,666
  -4,884
  -5,115
  -5,360
  -5,620
  -5,895
  -6,185
  -6,492
  -6,815
  -7,157
  -7,517
  -7,896
  -8,296
  -8,717
  -9,160
  -9,626
  -10,116
  -10,632
Change in working capital, $m
  -75
  25
  30
  34
  38
  42
  46
  50
  54
  59
  63
  67
  72
  76
  81
  86
  91
  97
  102
  108
  114
  120
  127
  134
  141
  148
  156
  164
  173
  182
  191
Cash from operations, $m
  2,072
  -3,074
  -3,097
  -3,189
  -3,293
  -3,408
  -3,534
  -3,671
  -3,820
  -3,980
  -4,152
  -4,337
  -4,533
  -4,743
  -4,965
  -5,201
  -5,452
  -5,717
  -5,997
  -6,293
  -6,606
  -6,936
  -7,284
  -7,651
  -8,037
  -8,444
  -8,873
  -9,324
  -9,799
  -10,298
  -10,824
Maintenance CAPEX, $m
  0
  -1,404
  -1,432
  -1,464
  -1,502
  -1,544
  -1,591
  -1,643
  -1,698
  -1,759
  -1,824
  -1,894
  -1,969
  -2,049
  -2,134
  -2,225
  -2,321
  -2,422
  -2,530
  -2,644
  -2,764
  -2,891
  -3,025
  -3,166
  -3,315
  -3,472
  -3,638
  -3,812
  -3,995
  -4,188
  -4,390
New CAPEX, $m
  -1,244
  -405
  -481
  -549
  -617
  -684
  -750
  -817
  -884
  -952
  -1,022
  -1,094
  -1,167
  -1,242
  -1,320
  -1,401
  -1,485
  -1,572
  -1,662
  -1,756
  -1,854
  -1,956
  -2,063
  -2,175
  -2,291
  -2,413
  -2,541
  -2,675
  -2,814
  -2,961
  -3,114
Cash from investing activities, $m
  -824
  -1,809
  -1,913
  -2,013
  -2,119
  -2,228
  -2,341
  -2,460
  -2,582
  -2,711
  -2,846
  -2,988
  -3,136
  -3,291
  -3,454
  -3,626
  -3,806
  -3,994
  -4,192
  -4,400
  -4,618
  -4,847
  -5,088
  -5,341
  -5,606
  -5,885
  -6,179
  -6,487
  -6,809
  -7,149
  -7,504
Free cash flow, $m
  1,248
  -4,883
  -5,009
  -5,203
  -5,412
  -5,636
  -5,875
  -6,130
  -6,402
  -6,692
  -6,999
  -7,324
  -7,669
  -8,034
  -8,420
  -8,827
  -9,257
  -9,711
  -10,189
  -10,693
  -11,224
  -11,783
  -12,372
  -12,992
  -13,644
  -14,330
  -15,051
  -15,810
  -16,608
  -17,447
  -18,328
Issuance/(repayment) of debt, $m
  -386
  -456
  641
  732
  822
  911
  1,000
  1,089
  1,178
  1,269
  1,362
  1,458
  1,555
  1,656
  1,760
  1,867
  1,979
  2,095
  2,215
  2,341
  2,471
  2,608
  2,750
  2,899
  3,054
  3,217
  3,387
  3,565
  3,751
  3,947
  4,151
Issuance/(repurchase) of shares, $m
  -225
  5,601
  4,669
  4,805
  4,957
  5,124
  5,307
  5,507
  5,722
  5,953
  6,201
  6,401
  6,683
  6,984
  7,304
  7,643
  8,003
  8,383
  8,785
  9,209
  9,657
  10,130
  10,629
  11,154
  11,708
  12,291
  12,905
  13,550
  14,230
  14,945
  15,697
Cash from financing (excl. dividends), $m  
  -718
  5,145
  5,310
  5,537
  5,779
  6,035
  6,307
  6,596
  6,900
  7,222
  7,563
  7,859
  8,238
  8,640
  9,064
  9,510
  9,982
  10,478
  11,000
  11,550
  12,128
  12,738
  13,379
  14,053
  14,762
  15,508
  16,292
  17,115
  17,981
  18,892
  19,848
Total cash flow (excl. dividends), $m
  531
  262
  301
  334
  367
  400
  432
  465
  498
  531
  565
  534
  569
  606
  644
  684
  725
  767
  811
  857
  905
  955
  1,007
  1,061
  1,118
  1,178
  1,240
  1,305
  1,374
  1,445
  1,520
Retained Cash Flow (-), $m
  968
  -5,601
  -4,669
  -4,805
  -4,957
  -5,124
  -5,307
  -5,507
  -5,722
  -5,953
  -6,201
  -6,401
  -6,683
  -6,984
  -7,304
  -7,643
  -8,003
  -8,383
  -8,785
  -9,209
  -9,657
  -10,130
  -10,629
  -11,154
  -11,708
  -12,291
  -12,905
  -13,550
  -14,230
  -14,945
  -15,697
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -5,339
  -4,369
  -4,471
  -4,590
  -4,724
  -4,875
  -5,042
  -5,224
  -5,422
  -5,636
  -5,867
  -6,114
  -6,378
  -6,660
  -6,960
  -7,278
  -7,616
  -7,974
  -8,352
  -8,753
  -9,175
  -9,622
  -10,093
  -10,590
  -11,113
  -11,664
  -12,245
  -12,857
  -13,500
  -14,177
Discount rate, %
 
  11.90
  12.50
  13.12
  13.78
  14.46
  15.19
  15.95
  16.74
  17.58
  18.46
  19.38
  20.35
  21.37
  22.44
  23.56
  24.74
  25.98
  27.28
  28.64
  30.07
  31.57
  33.15
  34.81
  36.55
  38.38
  40.30
  42.31
  44.43
  46.65
  48.98
PV of cash for distribution, $m
 
  -4,771
  -3,452
  -3,089
  -2,739
  -2,404
  -2,087
  -1,790
  -1,514
  -1,262
  -1,036
  -836
  -662
  -514
  -391
  -291
  -212
  -150
  -104
  -70
  -46
  -29
  -18
  -10
  -6
  -3
  -2
  -1
  0
  0
  0
Current shareholders' claim on cash, %
  100
  57.3
  40.6
  28.8
  20.3
  14.4
  10.1
  7.1
  5.0
  3.5
  2.5
  1.7
  1.2
  0.8
  0.6
  0.4
  0.3
  0.2
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

NRG Energy, Inc., together with its subsidiaries, operates as a power company. The company provides electricity; system power, distributed generation, solar and wind products, backup generation, storage and distributed solar, demand response, energy efficiency, electric vehicle charging stations, and on-site energy solutions; carbon management and specialty services; and various energy services, such as operations, maintenance, technical, development, and asset management services. It owns and operates approximately 50,000 megawatts of generation. The company also offers retail energy, rooftop solar, portable solar, and battery products home services; and various bundled products, which combine energy with protection products, energy efficiency, and renewable energy solutions, as well as offers installation and contract management services for residential solar customers. As of December 31, 2015, it served approximately 2.77 million recurring and 624,000 discrete customers. In addition, the company owns, operates, and develops solar and wind power projects; develops, constructs, and finances a range of solutions for utilities, schools, municipalities, and commercial markets; and trades in electric power, natural gas, and related commodity and financial products, including forwards, futures, options, and swaps. As of December 31, 2015, it operated 90 active fossil fuel and nuclear plants, 16 utility scale solar facilities, and 36 wind farms and multiple distributed solar facilities. Further, the company transacts in and trades fuel and transportation services; directly sells energy, services, and products and services to retail customers under the NRG, Reliant, and other names; and provides steam, hot water, and chilled water, as well as electricity to commercial businesses, universities, hospitals, and governmental units. NRG Energy, Inc. was founded in 1989 and is headquartered in Princeton, New Jersey.

FINANCIAL RATIOS  of  NRG Energy (NRG)

Valuation Ratios
P/E Ratio -9.8
Price to Sales 0.6
Price to Book 3.7
Price to Tangible Book
Price to Cash Flow 3.7
Price to Free Cash Flow 9.2
Growth Rates
Sales Growth Rate -15.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -3%
Cap. Spend. - 3 Yr. Gr. Rate -8.9%
Financial Strength
Quick Ratio 2
Current Ratio 0.4
LT Debt to Equity 882.2%
Total Debt to Equity 942%
Interest Coverage 0
Management Effectiveness
Return On Assets 1.1%
Ret/ On Assets - 3 Yr. Avg. -3%
Return On Total Capital -3.5%
Ret/ On T. Cap. - 3 Yr. Avg. -9.1%
Return On Equity -30.7%
Return On Equity - 3 Yr. Avg. -42.3%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 30.7%
Gross Margin - 3 Yr. Avg. 27.7%
EBITDA Margin 13.7%
EBITDA Margin - 3 Yr. Avg. 5.2%
Operating Margin 0.9%
Oper. Margin - 3 Yr. Avg. -6.3%
Pre-Tax Margin -7.1%
Pre-Tax Margin - 3 Yr. Avg. -13.6%
Net Profit Margin -6.3%
Net Profit Margin - 3 Yr. Avg. -16.3%
Effective Tax Rate -1.8%
Eff/ Tax Rate - 3 Yr. Avg. -8.7%
Payout Ratio -9.8%

NRG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NRG stock intrinsic value calculation we used $12351 million for the last fiscal year's total revenue generated by NRG Energy. The default revenue input number comes from 2016 income statement of NRG Energy. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our NRG stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 11.9%, whose default value for NRG is calculated based on our internal credit rating of NRG Energy, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of NRG Energy.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of NRG stock the variable cost ratio is equal to 127.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for NRG stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.7% for NRG Energy.

Corporate tax rate of 27% is the nominal tax rate for NRG Energy. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the NRG stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for NRG are equal to 165.9%.

Life of production assets of 14.6 years is the average useful life of capital assets used in NRG Energy operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for NRG is equal to 10.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $2041 million for NRG Energy - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 311.573 million for NRG Energy is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of NRG Energy at the current share price and the inputted number of shares is $7.5 billion.

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COMPANY NEWS

▶ NRG Energy, Inc. Announces Quarterly Dividend   [Jul-20-17 04:30PM  Business Wire]
▶ NRG Energys Outlook and Analysts Target Price   [10:39AM  Market Realist]
▶ Analyzing NRG Energys Debt Restructuring Plan   [07:37AM  Market Realist]
▶ NRG Energy Rose 30%: Whats Its Valuation?   [10:38AM  Market Realist]
▶ NRG Energy Stock Enters the Overbought Zone   [09:09AM  Market Realist]
▶ NRG Energy Sees a Major Upside Breakout   [03:50PM  TheStreet.com]
▶ What Happened in the Stock Market Today   [05:03PM  Motley Fool]
▶ The Hot Stock: NRG Soars 29.4%   [04:33PM  Barrons.com]
▶ [$$] NRG Energy: Green shoots   [01:35PM  Financial Times]
▶ NRG Energy plans up to $4 billion in asset sales   [11:53AM  Associated Press]
▶ NRG Energy Launches Transformation Plan   [07:00AM  Business Wire]
▶ After-hours buzz: HCSG, HUM & more   [Jul-11-17 05:51PM  CNBC]
▶ Analysts Recommendations for NRG Energy Stock   [09:07AM  Market Realist]
▶ Analyzing NRG Energys Implied Volatility   [Jul-07-17 04:06PM  Market Realist]
▶ Does NRG Energy Stock Seem Expensive?   [02:35PM  Market Realist]
▶ Old Town North plan, a framework to transform 200-plus Alexandria acres, adopted   [Jun-28-17 09:52AM  American City Business Journals]
▶ Analysts on NRG Energy: Upside Expectations   [Jun-26-17 05:06PM  Market Realist]
▶ Oxy makes two $600M deals to sell, buy Permian assets   [Jun-19-17 06:28PM  American City Business Journals]
▶ [$$] GenOn Energy Files for Chapter 11 Bankruptcy Protection   [Jun-15-17 12:20AM  The Wall Street Journal]
▶ NRG Energy's GenOn unit files for bankruptcy   [Jun-14-17 12:38PM  Reuters]
▶ [$$] GenOn Plant Owners Sue Over NRG-Backed Restructuring   [Jun-13-17 12:58PM  The Wall Street Journal]
▶ Whos Who among Optimistic S&P 500 Utilities Today   [Jun-09-17 09:06AM  Market Realist]
▶ Houston companies shuffle around Forbes Global 2000 list   [May-24-17 01:55PM  American City Business Journals]
▶ The Way Forward for Carbon Capture   [May-21-17 10:01PM  The Wall Street Journal]
▶ These Utility Stocks Could Be Bearish   [05:05PM  Market Realist]
▶ ETFs with exposure to NRG Energy, Inc. : May 5, 2017   [May-05-17 04:23PM  Capital Cube]
▶ NRG reports 1Q loss   [06:43AM  Associated Press]
▶ Which Utility Stocks Could Be a Concern for Investors?   [May-01-17 02:05PM  Market Realist]
▶ Week of April 2428: Utility Stocks in Focus   [12:35PM  Market Realist]
▶ NRG Energys Implied Volatility Is Rising   [12:35PM  Market Realist]
▶ This Week in Solar   [Apr-29-17 09:45AM  Motley Fool]
Stock chart of NRG Financial statements of NRG Annual reports of NRG
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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