NRG Energy (NYSE:NRG) shares rose more than 2% pre-market today after Evercore ISI analysts upgraded the company from In Line to Outperform, raising the price target to $126 from $74. The upgrade reflects confidence in NRG’s strong growth prospects and attractive valuation, particularly as market dynamics in power generation and load growth create compelling opportunities for independent power producers.

Despite a 75% increase in NRG’s stock over the last twelve months, it has underperformed relative to peers like Vistra (+257%), Constellation Energy (+91%), and Talen Energy (+215%). The analysts see NRG as undervalued, with significant upside potential as it continues to capitalize on its position in the independent power producer sector.

NRG’s shares are expected to benefit from favorable market conditions and the company’s ability to leverage the ongoing divergence between power generation capacity and load demand growth. The valuation methodology combines an equally weighted approach of price-to-earnings, EV/EBITDA, and free cash flow yield, leading to a $126 price target. This valuation implies an attractive total shareholder return of approximately 22%.

The analysts anticipate that NRG’s strong stock performance in 2024 will carry into 2025, bolstered by robust fundamentals and favorable market dynamics.