NRG Energy, Inc.

NRG Details

NRG Energy, Inc. (NYSE: NRG) is one of the largest integrated power companies in the U.S. It produces, sells, and delivers electricity and related products in significant power and gas markets in the U.S. and Canada. As of June 30, 2021, NRG sold energy, services, and sustainable products and services directly to ~6 million retail customers under the brand names NRG, Reliant, Green Mountain Energy, Stream, and XOOM Energy, among others, supported by ~23,000 Megawatts (MW) of generation.

Proposed Offering of USD 1.1 Billion Notes: On August 09, 2021, NRG announced a proposed offering of USD 1.1 billion aggregate principal amount of senior notes due 2032 under its sustainability-linked bond framework. The proceeds of the offering, along with cash in hand and other borrowings, will be used to redeem USD 1.0 billion of 7.25% senior notes due 2026, USD 355 million of the outstanding USD 1.23 billion 6.625% senior notes due 2027, and to pay fees and expenses incurred in connection with the redemption.

Q2FY21 Results: The company reported a surge of 134.27% in total revenue to USD 5.24 billion in Q2FY21 (ended June 30, 2021) compared to USD 2.24 billion in Q2FY20, attributable to significant improvement in the Texas and East segments. East segment, which represented 51.08% of the total revenue in Q2FY21, reported a sharp uptick of 4.91x, whereas the Texas segment reported YoY growth of 28.33%. Net income for Q2FY21 grew 3.44x YoY and stood at USD 1.08 billion compared to USD 313 million in Q2FY20.

Key Risks: The majority of NRG's power generation facilities are fueled by natural gas, coal and oil, the pricing of which is highly volatile and unpredictable. Any lag in the supply of requisite quantity or unfavorable pricing could distort the company's overall performance. Furthermore, it depends on several third parties to store and transport natural gas and the transmission and distribution of power to its consumers. Failure to meet any contractual obligation with these third parties could harm its operations.

Outlook: As of Q2FY21, NRG expects a net loss in the range of USD 340 – 140 million in FY21. The company forecasts its adjusted EBITDA to the tune of USD 2.4 – 2.6 billion and adjusted cash flow from operations to range between USD 1.63 – 1.83 billion. It also estimates Free Cash Flow Before Growth (FCFbG) of USD 1.44 – 1.64 billion in FY21.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

 (Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

NRG Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: NRG's stock price has increased 23.72% in the past three months and is currently trading close to the higher-end of its 52-week range of USD 28.22 to USD 44.44. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 71.11. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 37.71. Considering the uptick in the stock price, we believe the current price adequately reflects the business fundamentals and recommend a "Sell" rating on the stock at the current price of USD 43.87, down 0.05% as of August 09, 2021, 12:01 PM ET.

* All forecasted figures and Industry Information have been taken from REFINITIV.

* The reference data in this report has been partly sourced from REFINITIV.

Himax Technologies, Inc.

HIMX Details

Himax Technologies, Inc. (NASDAQ: HIMX) is a leading supplier and manufacturer of display drivers and semiconductor products. Display driver Integrated Circuits (ICs) and timing controllers used in TVs, laptops, mobile phones, tablets, digital cameras, and virtual reality (VR) devices are available through the company's 1) Driver Integrated Circuit (ICs) products and 2) Non-Driver products segments. As of June 30, 2021, Himax had 3,023 patents granted and 503 patents pending approval worldwide. HIMX operates in Taiwan, China, Korea, Japan, Israel, and the United States. As of August 09, 2021, the company has 174.30 million American Depository Shares (ADS) listed and outstanding (each ADS representing two ordinary shares).

Launched Phase Modulation LCoS Platforms: The company launched its latest liquid crystal on silicon (LCoS) technology-based phase modulation LCoS on May 19, 2021, for two key application platforms: AR Head-Up Display (AR HUD), used as a holographic display for automotive, and Wavelength Selective Switch (WSS) for Wavelength-Division Multiplexing (WDM) optical communications networks.

Microstructure Optical Film for Automotive Panel Customers: HIMX and CM Visual Technology Corp. (CMVT), a Taiwan-based company focused on microstructure optical film manufacturing, jointly announced Omniwide Film, a microstructure optical film for addressing optical display performance challenges in various display panel applications, on April 19, 2021. Previously, Himax had made a strategic capital investment in October 2020 to buy a 66.71% stake in CMVT and became its largest stakeholder.

6MFY21 Results: The company reported a sharp uptick of 81.46% in total revenues to USD 674.26 million during 6MFY21 compared to USD 371.58 million during 6MFY20. It witnessed a massive growth in net income to USD 174.61 million during 6MFY21 compared to USD 3.75 million during 6MFY20. As of June 30, 2021, its balance sheet stood with cash and cash equivalents (including other financial assets) of USD 270.41 million, with a total debt of USD 159.50 million.

Key Risks: The company's primary customer accounted for 32.6%, 29.5%, and 28.1% of the total revenue during FY20, FY19, and FY18, respectively. Excessive dependence on a particular customer for business could hurt the company's financial health in the future. Further, the TFT-LCD panel business, which is highly cyclical and sensitive to price swings, accounts for most of the company's net revenues (85.2% in FY20). As a result, HIMX's business could be harmed by such cyclicality and pricing variations.

Outlook: For Q3FY21, the company expects a 13% to 17% increase in revenues compared to Q2FY21. The gross margin is expected to range between 50.5% to 52.0%. The company is projecting its Q3FY21 IFRS profit range from USD 0.63 to USD 0.69 per diluted ADS.

Valuation Methodology: EV / EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

HIMX Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: HIMX's share price increased 275.77% in the past nine months and is currently trading at the higher-band of the 52-week range of USD 3.28 to USD 17.88. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 57.06. We have valued HIMX using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 12.81. Considering the significant surge in the stock price, we believe the current price adequately reflects the decent fundamentals and recommend a "Sell" rating on the stock at the current price of USD 14.73, up 5.82% as of August 09, 2021, 1:14 PM ET.

* All forecasted figures and Industry Information have been taken from REFINITIV.

* The reference data in this report has been partly sourced from REFINITIV.