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While the S&P 500 has fallen about 2.7% this week, investors are feeling a lot less charged up about shares of NRG Energy (NRG 0.31%). The company announced a major acquisition on Tuesday, and it seems that investors aren’t so enthusiastic about the news. And that’s not all. Bears on Wall Street who revealed their pessimism for the stock this week also contributed to the sell-off.
As of 2:45 p.m. ET, shares of NRG Energy, a natural gas and electric utility, are down 20.9% since the end of last Friday’s trading session, according to data from S&P Global Market Intelligence.
NRG Energy announced that it will acquire Vivint Smart Home (VVNT -0.08%) in a $2.8 billion all-cash transaction that is expected to close in the first quarter of 2023.
According to Mauricio Gutierrez, NRG Energy’s president and CEO, the acquisition is consistent with the company’s goal of “becoming the leading provider of essential services for homes and businesses.” In a statement accompanying the announcement of the acquisition, Gutierrez asserted that “[t]he acquisition of Vivint is a transformational step in achieving our vision.”
Besides home security systems, Vivint specializes in smart home solutions as well as residential solar power systems.
Following the company’s announcement, NRG Energy’s stock became the subject of bears’ speculation. Ross Fowler, an analyst with UBS, slashed his price target to $30 from $42, while David Arcaro, an analyst with Morgan Stanley, dropped his price target to $37 from $47, according to The Fly.
While Vivint Smart Home has grown revenue over the past few years, the company has consistently failed to generate earnings before interest, taxes, depreciation, and amortization (EBITDA).
VVNT Revenue (Annual) data by YCharts.
In addition, the NRG Energy’s acquisition includes the assumption of $2.4 billion in debt. These two factors — as well as the analysts’ inauspicious views of the stock — are undoubtedly leading shares lower this week.
Scott Levine has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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