Why NRG Energy's Shares Popped 15% Today

By Markets Fool.com

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What happened

Shares of utility NRG Energy (NYSE: NRG) jumped as much as 15.2% on Friday after the company reported third-quarter earnings. At 1:45 p.m. EDT, shares had given back some of those gains but were still up 10.6% on the day.

So what

Revenue fell 10.9% in the quarter to $3.95 billion, but net income surged from $61 million a year ago to $402 million, or $1.27 per share. Management also said 2016 adjusted EBITDA would now be between $3.25 billion and $3.35 billion, up from $3.0 billion to $3.2 billion previously. And free cash flow guidance was revised to the top end of the previous range at $1.1 billion to $1.2 billion.

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2017 guidance was also introduced and management estimates adjusted EBITDA will be $2.7 billion to $2.9 billion and free cash flow will be $800 million to $1 billion. The fact that both figures are down from 2016 shows just how low expectations were for the business.

Now what

This wasn't really a case of NRG Energy's business improving rapidly. It was a case of beating already low expectations. There's still a very low electricity environment and that'll put pressure on the business over the next few years. But NRG is growing its own renewables business as well as NRG Yield, which owns renewable energy projects. And as that transition continues, the company could eventually return to growth, which would be very welcome news for investors.

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Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of NRG Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.