NRG Energy And Vivint: Paying For Transformation, The Street Prefers Buybacks

It would seem that the Street is far from convinced about the ongoing restructuring and business transformation efforts at NRG Energy, Inc. (NYSE:NRG), and the latest move – the $2.8B deal for Vivint Smart Home, Inc. (NYSE:VVNT) – is doing nothing to ease that anxiety. The shares fell about 15% on the deal announcement, continuing a trend of sharp moves between the mid-$20s and mid-$40s over the last five years as the Street tries to dial in the long-term cash flow consequences of management’s ongoing business transformation efforts.

I can understand why at least some investors would prefer the certain accretion of buybacks over another M&A transaction that brings integration and execution risk. I believe further transformation is necessary, though, and I favor using cash flow to build up (or perhaps shore up) the company’s future prospects and cash flow generation capabilities, so I see this as a short-term versus long-term debate. I do think the selloff makes the shares more interesting, but I do also see ongoing execution risk here.

 

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NRG Energy And Vivint: Paying For Transformation, The Street Prefers Buybacks