NRG Energy, Inc.NRGNYSE

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DCF Valuation

⚠️Model Warnings

•Revenue projections show 16% decline from peak. Analyst estimates may reflect secular headwinds or transition period.

DCF Valuation Summary

Strong Buy

Fair Value: $301.71 per share(market-calibrated)

+84.5%

Upside to Fair Value

Current

$163.54

Pure Model

$312.27

Fair Value

$301.71

Bull Case

$376.33

Bear Case

$255.67

Market Reality Check

Model Terminal Growth

2.00%

Market-Implied Growth

0.50%

Calibrated Growth

1.48%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $312.27.

What's Driving This Ratingfor NRG

✓

CapEx already efficient

CapEx at 1.86% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 6.81% — below the sector mature average of 20.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $6.0B (15.68% margin).

⚠

Analyst growth decelerates sharply

Revenue growth drops from 15.92% in Year 1 to 1.50% by Year 5 (per analyst consensus). That's below the 2.00% terminal rate, so growth re-accelerates in Years 6-10 — a generous assumption. This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 150bps below the model's 2.00%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 73.76% indicates efficient cash generation. FCF reaches $5.4B by Year 10 (14.05% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.26

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)10.19%

Cost of Debt

Pre-tax Cost of Debt3.57%

Tax Rate19.85%

After-tax Cost of Debt2.86%

Equity Weight (E/V)65.54%

Debt Weight (D/V)34.46%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (65.54% × 10.19%) + (34.46% × 2.86%)

= 7.67%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$35.6B	$41.4B	$34.8B	$36.0B	$38.1B
EBIT	$2.4B	$2.8B	$2.4B	$4.2B	$6.0B
Tax	$481M	$559M	$471M	$826M	$1.2B
NOPAT	$1.9B	$2.3B	$1.9B	$3.3B	$4.8B
+ Depreciation	$1.2B	$1.4B	$1.2B	$1.2B	$1.3B
- Capex	$661M	$769M	$647M	$669M	$708M
- Δ NWC	$71M	$59M	$7M	$9M	$11M
Free Cash Flow	$2.4B	$2.8B	$2.4B	$3.9B	$5.4B
Discount Factor	0.929	0.801	0.691	0.596	0.478
Present Value	$2.2B	$2.3B	$1.7B	$2.3B	$2.6B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$5.4B

Terminal Growth Rate2.00%

WACC7.67%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$96.4B

PV of Terminal Value$46.0B

Exit Multiple Method

Year 10 EBITDA$7.3B

Exit Multiple (EV/EBITDA)16.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$116.1B

PV of Terminal Value$55.5B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$22.2B

PV of Terminal Value$46.0B

Enterprise Value$68.2B

(-) Net Debt$12.0B

Equity Value$56.2B

Shares Outstanding195M

Price per Share$288.07

Exit Multiple Method

PV of Projected FCFs$22.2B

PV of Terminal Value$55.5B

Enterprise Value$77.6B

(-) Net Debt$12.0B

Equity Value$65.6B

Shares Outstanding195M

Price per Share$336.47

Pure Model Fair Value

$312.27

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.00%	1.50%	2.00%	2.50%	3.00%
5.67%	$407.73	$429.22	$456.58	$492.58	$542.09
6.67%	$342.69	$355.80	$371.73	$391.48	$416.61
7.67%	$293.58	$302.17	$312.27	$324.33	$338.97
8.67%	$254.66	$260.58	$267.37	$275.28	$284.57
9.67%	$222.77	$227.00	$231.78	$237.22	$243.48

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$255.67

56.3% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.58

Base Case

$312.27

90.9% vs current

• Analyst consensus
• Terminal growth: 2.0%
• Beta: 1.26

Bull Case

$376.33

130.1% vs current

• +25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 1.08

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Utilities Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth15.92%

Year 3 Revenue Growth10.89%

Year 5 Revenue Growth1.50%

Year 7 Revenue Growth1.70%

Year 10 Revenue Growth2.00%

Terminal Growth Rate2.00%

Margin & Efficiency

Current EBIT Margin6.81%

Terminal EBIT Margin20.00%

Tax Rate19.85%

Historical Capex / Rev1.86%

NWC / Revenue1.45%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 16x EV/EBITDA (Utilities sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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