Activist investor Elliott Investment Management LP is calling for a management shake-up, including the ouster of CEO Mauricio Gutierrez at independent power producer NRG Energy (NYSE:NRG). According to the Wall Street Journal, Elliot is in talks with potential candidates to replace NRG’s CEO and other top executives.
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In response, NRG spokesperson said that the company fully supports its CEO and management team and will discuss with shareholders its strategic plan at the investor day event scheduled on Thursday.
NRG Under Activist Investor Pressure
In a letter last month, Elliott disclosed that it manages funds that have an investment of about $1 billion, representing more than 13% economic interest in NRG Energy. Elliot said the company has significantly underperformed due to several operational and strategic missteps. In particular, the activist investor highlighted NRG’s recent acquisition of Vivint Smart Home, which it called “the single worst deal in the power and utilities sector in the past decade.”
Elliot suggested some steps to improve the company’s prospects, including the addition of new independent directors with solid power and energy industry expertise, cost reduction, and a strategic review of the company’s home services strategy. Elliot also suggested a new capital allocation framework to return at least 80% of free cash flow to shareholders.
Elliot previously disclosed a large investment in NRG in 2017. Back then, the activist investor’s pressure led to the appointment of two new board members, the implementation of a transformation plan, and debt reduction. However, Elliot contends that the company has again lost its path since the turnaround. Elliot is known for pushing companies for board and management changes to drive better performance. Earlier this year, Elliot said that it would no longer pursue board changes at Salesforce (NYSE:CRM) due to the company’s impressive FY23 results and strategic initiatives.
What is the Target Price for NRG?
Last month, NRG Energy disappointed investors with its first-quarter results, as it slipped into a loss per share of $5.82 compared to EPS of $7.17 in the prior-year quarter. The company blamed large declines in natural gas and power prices as the reasons for its dismal Q1 results.
Of the four top Wall Street analysts covering NRG Energy, two have a Buy rating and two have a Hold recommendation. The average price target of $40.67 implies 20% upside. Shares have advanced more than 6% this year.
