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NRG Energy (NRG) Stock Pops, Should You Buy?

Shares of NRG Energy NRG skyrocketed on Wednesday after the company announced that it is set to begin its “transformation plan” after pressure from activist investors mounted.

NRG, which has headquarters in both New Jersey and Houston, lost over $7 billion in the last two years. The power plant operator attempted to expand its business model under a former CEO, shifting away from coal and gas to solar and wind, but it ended up hurting the business and costing investors money.

The company came under fire from activist hedge fund Elliott Associates LP and Bluescape Energy Partners LLC in January. Since then, NRG has slowly worked on a debt reduction plan through a massive overhaul of its business practices.

NRG, which helps generate energy in 30 States and Canada, announced in its transformation plan today that it hopes to sell up to $4 billion in assets, cut costs, and lower its debt.

“The transformation plan announced today demonstrates our commitment to simplify and strengthen the company to thrive through any market cycle,” NRG President and CEO Mauricio Gutierrez said in a statement.

“This plan is the result of a comprehensive review of our entire business by the board and management to simplify our business, right-size our portfolio and strengthen our balance sheet to create significant value for all our stakeholders.”

An excerpt from the announcement goes on to state: “The Transformation Plan is designed to significantly strengthen earnings and cost competitiveness, lower risk and volatility, and create significant shareholder value. The three-part, three-year plan is comprised of targets in the areas of operational and cost excellence, portfolio optimization, and capital structure and allocation enhancement.”

NRG now plans to cut costs and remove $13 billion of debt in order to try to generate profit. The company announced that it might dump all of its renewable energy business, NRG Yield, as part of the new plan.

NRG Stock Today

Shares of NRG jumped 22.3% in early afternoon trading today after the company announced its plan to revamp its business. NRG’s stock now sits just above its previous 52-week high. The company is trading hands at nearly six times its average volume today at 29.7 million.

NRG is currently a Zacks Rank #2 (Buy). The stock also earned an “A” grade for Value; however, it scored a “C” for both Growth and Momentum in our Style Scores system.

Given the volatility that changes to regulations and economic policies can have on the energy sector, it might be wise to be cautious, especially when considering the political uncertainty surrounding Washington D.C.

However, NRG seems poised to try to turn the tides—even if it took some outside prodding. And if today is any indication, investors might slowly make their way back to the energy company.

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