Episode Details

NRG Energy, Inc. (NRG) Q2 2026 — Reported Aug 4, 2026 pre-open, quarter ended June 30, 2026. Revenue $7,481M (+11%) beat ~$7,312M est. ADJUSTED EPS $1.49 MISSED ~$1.69; GAAP EPS $2.32. Adj EBITDA $1,217M (+34%). FY26 guidance REAFFIRMED. Stock -15.4% to $117.13, a 52-week low. NRG beat on revenue, grew adjusted EBITDA 34%, reaffirmed full-year guidance and announced a 1.2 GW gas plant for an AI hyperscaler - and the stock fell 15.4% to a 52-week low. The reason is on page 17 of the deck: NRG's guidance assumes $52/MWh Texas power, and the July 10 forward curve prints $40. Every year through 2030 is 8-23% below the assumption. We still think the sell-off overshot. THE CALL: BUY (3/5, CHEAP FOR REASONS - AND THE REASONS ARE SURVIVABLE) — base-case value ~$140.0 vs ~$117.13 today. KEY METRICS: - CALL: BUY 3/5 - fair value ~$140 vs $117.13 (+20%). Equity DCF on FREE CASH FLOW TO EQUITY at the cost of equity (no debt add-back; FCFbG is already after ~$1.2Bn/yr of cash interest). Base = the $3,050M FY26 FCF-before-growth midpoint LESS the $686M of growth investment in NRG's own capital-allocation bridge ($416M data centre + $205M plant/consumer + $65M other) = $2,364M, or $11.24/share. Base 11.0% CoE / 1.75% terminal = $138; bear $102, bull $217; 30/50/20 = $143. At $140 that is 9.5x EV/2026E adj EBITDA and 15.7x the guided EPS midpoint. - THE PRINT: revenue $7,481M (+11%) vs ~$7,312M est - a BEAT. ADJUSTED EPS $1.49 vs ~$1.69 est and $1.73 a year ago - a MISS. GAAP net income $506M, GAAP basic EPS $2.32 (vs a $104M loss last year). Adjusted EBITDA $1,217M, +34%. FCF before growth $1,025M. Adjusted EPS fell because the LS Power deal brought $305M of quarterly interest and $494M of D&A with it. - WHY IT REALLY FELL - THE POWER CURVE. Deck slide 30 states the outlook assumption: ERCOT around-the-clock $52/MWh for 2026 and '$52 flat' for 2027-2030. Slide 17, same file, prints the actual curve at 7/10/2026: 2026 $40 vs $52 (-23%), 2027 $46 vs $59 (-21%), 2028 $50 vs $59, 2029 $52 vs $59, 2030 $54 vs $59. NRG's own sensitivity says a $45 ATC price costs the Texas book $150M hedged and $380M unhedged - and the out-years are the unhedged ones. PJM went the other way, +7-26%. - SEGMENTS + BALANCE SHEET: Texas adj EBITDA $381M vs $512M, DOWN 26% (H1 $597M vs $811M). East $469M vs $99M - but $7,101M of cash bought it, plus PJM capacity clearing $325-333/MW-day (revenue $644M -> $729M -> $781M). Vivint $301M (+16%). Debt and finance leases $23,256M vs $162M of cash; net debt ~4.1x guided EBITDA vs 3.0x at VST and 2.6x at CEG. NRG cut $681M out of debt paydown to fund the plant. - THE DATA CENTRE DEAL + REVERSE TEST: 1.2 GW CCGT, expandable to 2.4 GW, 15-year minimum term, investment-grade hyperscaler with a parent guarantee, ~95% of project cash flow from capacity payments not utilisation. $3.2Bn cost ($2,700/kW), ~$500M run-rate adj EBITDA and ~$375M FCFbG, 12-15% IRR, a 6.4x build multiple against NRG's own 8.7x trading multiple. But status is only 'Commercial Terms Aligned' and first power is late 2029. REVERSE TEST: at $117.13 the ~$24.5Bn equity requires FCF to equity to grow just 1.3% a year forever. STREET: Buy (14/2/1 of 17), average target cut to ~$198 from $202 (high $267, LOW $99). We DIFFER - same side, far less upside. What to watch: Bullish: definitive documentation / FID on the 1.2 GW BYOP project (today it only reads 'commercial terms aligned') takes us to ~$165. Bearish: the ERCOT 2027 strip staying below $46, or a November quarter that fails to close the $2.98-vs-$7.90-9.90 guidance gap, takes us to ~$100. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.