NRG Energy (NYSE:NRG) experienced a sharp selloff on Tuesday, with shares dropping 15.5% to $117.00 in intraday trading. The decline came after the company reported second-quarter adjusted earnings that fell short of Wall Street expectations, compounding broader weakness in the power generation sector.
The company posted adjusted earnings per share of $1.49, below the LSEG consensus estimate of $1.70. While adjusted EBITDA jumped 33.9% to $1.217 billion, a significant increase from $909 million in the prior-year quarter, the gains were largely offset by soaring interest expenses and depreciation costs tied to the recent acquisition of LS Power's generating portfolio.
NRG finalized its purchase of LS Power's 13-gigawatt portfolio in January, expanding its total generating capacity to approximately 25 gigawatts across 18 new facilities. The acquisition, funded partly through new stock issuance, increased weighted average shares outstanding by 7.7%, diluting per-share earnings. Interest expense more than doubled to $310 million, while depreciation and amortization climbed 43.6% to $494 million.
Segment performance was mixed. The East segment led the way, with EBITDA surging to $469 million from $99 million, driven by new facilities and higher capacity prices. Texas EBITDA, however, fell 26% to $381 million due to increased supply costs and mild weather. Vivint, NRG's smart home business, saw EBITDA rise 16% to $301 million.
NRG maintained its full-year 2026 outlook, but the midpoint implies a significant acceleration in the second half. Adjusted EPS for the second half is expected to reach $5.92, nearly double the $2.98 reported in the first half. Free cash flow before growth investments is projected to climb by more than 118% to $2.091 billion in the second half. Achieving these targets will require strong operational execution and favorable market conditions.
The selloff was exacerbated by a Texas regulatory development. Governor Greg Abbott directed the Public Utility Commission and ERCOT to audit data-center power connection requests before granting further approvals. Abbott's letter cited 474 gigawatts of connection requests, with about 90% coming from data centers. This news pressured the entire power sector, with Vistra (NYSE:VST) falling 6.6%, Constellation Energy (NASDAQ:CEG) down 1.9%, and Talen Energy (NASDAQ:TLN) off 0.5%.
NRG also disclosed key terms of a proposed agreement with an unnamed cloud and AI hyperscaler for a 1.2-gigawatt gas facility in Texas, potentially expandable to 2.4 gigawatts pending documentation and regulatory approvals. CEO Robert Gaudette hailed the deal as "the model for how large load growth should work," though the company did not confirm whether the project would be exempt from the new audit.
Analysts remained cautiously optimistic. James West of Melius Research noted that the earnings miss is unlikely to impact NRG's long-term outlook, citing upcoming contracts and anticipated cash-flow growth. However, risks remain, including elevated interest rates, adverse weather, integration costs, and potential regulatory delays.
NRG has completed $932 million of its $1 billion share repurchase program for 2026, leaving $68 million available. The company's ability to convert EBITDA growth into per-share earnings will be a key focus for investors in the coming quarters.
