Goldman Sachs Deems This Energy Stock a 'Conviction Buy'

The options pits are overwhelmingly bullish towards the equity

Digital Content Manager
Jun 28, 2021 at 10:19 AM
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Electric utility name NRG Energy Inc (NYSE:NRG) is enjoying some tailwinds this morning, after Goldman Sachs added it to its "Conviction Buy" list while also raising its price target to $57 from $46. The analyst in question said a return to normal operating conditions is expected for the company's retail business after the effects of winter storm Uri, which would drive cash flows by 2022. Plus, the firm anticipates a share buyback of "just under 25% of its market cap, given its strong leverage metrics and cash generation." At last check, NRG is up 3% at $39.65.

The brokerage bunch was already optimistic towards NRG Energy stock, with four of the five analysts in coverage carrying a "strong buy" rating. Plus, the 12-month consensus target price of $46.90 is an 18.5% premium to current levels. 

The options pits echo that bullish sentiment. This is per the equity's 50-day call/put volume ratio of 28.33 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which stands higher than all readings from the past year. This means longs calls are being picked up at a quicker-than-usual clip. Today is more of the same, with calls trading at six times the average intraday amount. The July 41 call is leading the charge, with new positions being opened.

The good news for these traders is that NRG options are affordably priced right now. This is per the stock's Schaeffer's Volatility Index (SVI) of 29%, which sits in the low 5th percentile of readings from the past year. In other words, options players are pricing in low volatility expectations. 

NRG scored a 13-year high of $44.07 on March 15. Two days later, the shares suffered a nasty bear gap after the company first disclosed the impact of Uri. Today's pop has NRG trading at its highest level since that steep drop. And over the last nine months, NRG has risen 33%.


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