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Last update on 2024-06-06

NRG Energy (NRG) - Piotroski F-Score Analysis for Year 2023 (Final Score: 1/9)

Insightful Piotroski F-Score analysis on NRG Energy (NRG) for 2023. See how NRG scores on profitability, liquidity, and operational efficiency.

Knowledge hint:
The Piotroski F-Score is a number between 0 to 9 which reflects the strength of a company's financial position. It is based on 9 criteria involving profitability, liquidity, and leverage. This model helps investors identify stocks that are strong, undervalued investments.
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Short Analysis - Piotroski Score: 1

We're running NRG Energy (NRG) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Criteria
Company has a positive net income?
0
Company has a positive cash flow?
0
Return on Assets (ROA) are growing?
0
Operating Cashflow are higher than Netincome?
0
Leverage is declining?
0
Current Ratio is growing?
0
Number of shares not diluted?
1
Cross Margin is growing?
0
Asset Turnover Ratio is growing?
0

The Piotroski F-Score rates a company's financial wellbeing on a scale from 0 to 9 based on 9 criteria in profitability, liquidity, and efficiency. NRG Energy scored just 1 point on this scale for 2023, indicating weak financial health across almost all areas assessed.

Insights for Value Investors Seeking Stable Income

Given NRG Energy's low Piotroski score of 1, it doesn’t seem to be a strong, undervalued investment. Its negative net income and cash flow, decreasing ROA and current ratio, increased leverage, reduced gross margin, and dropping asset turnover suggest the company is not currently in a good financial position. Investors may want to consider other stocks or monitor NRG for potential future improvements before investing.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of NRG Energy (NRG)

Company has a positive net income?

Net income indicates the profitability of a company and is one of the primary measures of financial performance. A positive net income means the company is profitable, while a negative net income indicates a loss.

Historical Net Income of NRG Energy (NRG)

NRG Energy's net income in 2023 stands at -$202 million, which is decidedly negative. Over the last two decades, the net income has shown considerable volatility. Evaluating the long-term trend, NRG Energy has had years with substantial profitability, such as 2003 at $2.778 billion and 2019 at $4.438 billion, but also years with significant losses, such as 2018 at -$2.153 billion and 2015 at -$6.382 billion. For the Piotroski score for 2023, under the net income criterion, NRG Energy scores 0 points as the net income is negative. This lack of profitability could be viewed unfavorably by investors seeking consistent performance.

Company has a positive cash flow?

Cash Flow from Operations (CFO) measures the cash generated by a company's normal business operations. Positive CFO is crucial for assessing the company’s short-term financial health and operational efficiency.

Historical Operating Cash Flow of NRG Energy (NRG)

For NRG Energy (NRG), the Cash Flow from Operations (CFO) for 2023 is -$221 million, indicating a negative cash flow. Analyzing historical data, we observe that this is the first negative CFO in the last 20 years, with the last negative CFO recorded in 2003 at -$350.37 million. This sudden shift to a negative CFO raises concerns about the company's ability to generate sufficient cash from its core operations, affecting its liquidity and potentially its ability to meet short-term obligations. Based on the Piotroski criteria, since the CFO is negative, NRG Energy scores 0 points for this criterion.

Return on Assets (ROA) are growing?

Change in Return on Assets (ROA) is a criterion representing the company's efficiency in generating profit from its assets compared to the previous year.

Historical change in Return on Assets (ROA) of NRG Energy (NRG)

Analysis of NRG Energy's ROA reveals that the company's ROA has significantly decreased from 0.0467 in 2022 to -0.0073 in 2023. This negative shift indicates a deterioration in asset efficiency and profitability. ROA is a crucial measure as it reflects the company's ability to convert its assets into earnings. In NRG's case, the decrease sets the ROA score to 0 for this Piotroski criterion. Comparing with the industry median ROA, which has also shown variability but has largely remained in positive territory over the years, underscores the concerning trend of NRG's performance.

Operating Cashflow are higher than Netincome?

MSC/Technology Enhancement

Historical accruals of NRG Energy (NRG)

In the year 2023 for NRG Energy (NRG), the operating cash flow was -$221 million, which is lower than the net income, which was -$202 million. According to the Piotroski Analysis, one critical criterion entails operating cash flow being higher than net income as it suggests the core business is generating sufficient cash to meet its obligations. In this case, since the operating cash flow is lower than the net income, 0 points will be awarded for this criterion. This shortfall could point to potential issues with the company’s cash-generating capability. Historically, NRG Energy had consistently positive cash flow from operations until it dipped into the negative only recently in 2023. The company's net income has also seen fluctuations, turning negative during certain periods. Generally, sustainable cash flow is vital for the company's financial health, and this recent dip can raise concerns regarding its operational efficiency and ability to maintain liquidity.

Liquidity of NRG Energy (NRG)

Leverage is declining?

Change in Leverage represents the shift in a company's debt levels. It's important as it provides insights into the financial risk and health of the organization. Lower leverage generally signifies stronger financial stability.

Historical leverage of NRG Energy (NRG)

In 2022, NRG Energy's leverage was at 0.2798. However, in 2023, this leverage increased to 0.3941, signaling a rise in debt levels relative to equity. This nearly 41% increase in leverage can be viewed as a negative trend, indicating that the company has witnessed a significant rise in its financial leverage over the past year. Historically, NRG's leverage has experienced fluctuations, peaking at 0.674 in 2017 and then reducing sharply before rising again. This latest increase moves NRG back towards its historical average, pointing to the company's rising debt burden.

Current Ratio is growing?

The Current Ratio measures a company's ability to pay its short-term obligations with its current assets. This is crucial for assessing a company's short-term financial health.

Historical Current Ratio of NRG Energy (NRG)

The Current Ratio of NRG Energy in 2023 is 1.0239, compared to 1.2503 in 2022. This represents a decrease in the Current Ratio, indicating a deterioration in NRG Energy's short-term liquidity and financial health. Historically, NRG's Current Ratio has fluctuated, but the decrease from 2022 to 2023 puts it below the industry median of 1.0239 in 2023. This trend is concerning for stakeholders relying on the company's ability to meet short-term obligations, leading to a score of 0 based on the Piotroski criterion.

Number of shares not diluted?

Shares outstanding reflects the total shares currently held by all shareholders, including share blocks held by institutional investors and restricted shares owned by company insiders. Analyzing changes can indicate share buybacks or dilution.

Historical outstanding shares of NRG Energy (NRG)

In 2022, NRG Energy had 236,000,000 shares outstanding which dropped to 228,000,000 in 2023. This 3.39% reduction implies that the company has likely repurchased shares from the market. A decrease in the number of outstanding shares typically indicates a buyback, suggesting the company's confidence in its value. According to the Piotroski score criteria, this scenario earns NRG Energy 1 point for reducing the number of outstanding shares. Over the last 20 years, it is evident that the current trend continues a general decrease since a peak in 2014, further affirming positive financial discipline.

Operating of NRG Energy (NRG)

Cross Margin is growing?

The criterion evaluates changes in Gross Margin, measuring operational efficiency.

Historical gross margin of NRG Energy (NRG)

Comparing NRG Energy's gross margin of 0.0797 in 2023 to 0.1299 in 2022 shows a decrease, not an increase. This provides 0 points. Over the last 20 years, their gross margin trended higher than the industry median till mid-2010s but later fell below it, highlighting a need for urgently refining operational strategies to regain a competitive edge.

Asset Turnover Ratio is growing?

Asset Turnover measures the efficiency of a company's use of its assets to generate sales. A higher ratio indicates better performance.

Historical asset turnover ratio of NRG Energy (NRG)

In 2023, NRG Energy's Asset Turnover ratio was 1.0446, compared to 1.2056 in 2022. This represents a decrease, not an increase, in Asset Turnover, signaling less efficient use of assets in generating revenue. Over the last 20 years, NRG's Asset Turnover ratio showed an overall upward trend, peaking at 1.417 in 2021. This downward movement in 2023 may warrant a closer look into potential operational inefficiencies, asset base changes, or market conditions impacting sales. Therefore, based on Piotroski's criteria, this does not add a point for Financial Strength.


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