Portrait Weekly Winners & Losers: NRG & FI
Welcome to this week’s edition of the Portrait Weekly Winners & Losers. This week, we’ll take a look at NRG Energy Inc. (NRG) and Fiserv Inc. (FI).
Last week, we saw NRG Energy and Fiserv experience swings in stock prices, due to NRG’s recently announced acquisition and FI’s disappointing earnings. Let’s dive into each company’s developments.
FI
After comments from FI’s CFO at JP Morgan’s TMT conference, FI’s stock fell an astonishing 16%. Let’s dive in.
What happened?
After revealing that the company’s Clover platform experienced artificially inflated growth due to one-time factors, Clover created significant investor disappointment.
Analysis of Fiserv's Recent Stock Weakness
Core Issues Driving Market Disappointment on May 15th, 2025
Fiserv's (FI) stock weakness on May 15th, 2025 appears to have been primarily triggered by commentary from Chief Financial Officer Bob Hau at a JPMorgan event. The CFO revealed that a significant portion of the company's previous Clover platform growth had been artificially inflated by one-time factors that would not recur, creating a "gateway headwind" expected to intensify in the current quarter (Web - Research - FI.UP). This revelation fundamentally undermined investor confidence in the sustainability of growth in one of Fiserv's most strategically important business segments.
Specifically, Hau clarified that much of last year's Clover growth had been boosted by existing Fiserv clients being converted to the Clover gateway—a non-recurring event that created a challenging year-over-year comparison (Web - Research - FI.UP). This disclosure forced investors to recalibrate their expectations for Fiserv's forward growth trajectory, particularly in the high-margin Clover business that had been positioned as a key growth driver.
The market disappointment was compounded by Fiserv's recent Q1 2025 earnings report (April 24th), which had already revealed concerning trends:
Significant deceleration in Merchant Solutions organic revenue growth to 8% in Q1 2025, down from 23% in Q4 2024 (News - April 2025 - FI.UP)
Anemic Small Business payment volume growth of just 3%, suggesting underlying weakness in a core customer segment (Fiserv, Inc., Q1 2025 Earnings Call, Apr 24, 2025)
Clover volume growth of only 8%, a substantial deceleration from previous quarters (News - April 2025 - FI.UP)
Processing revenue decline of 7% organically, indicating challenges in a significant business line (Fiserv, Inc., Q1 2025 Earnings Call, Apr 24, 2025)
Additionally, the company was in the midst of a CEO transition, with Michael Lyons having recently assumed leadership following Frank Bisignano's confirmation as Commissioner of the Social Security Administration on May 6th, 2025 (News - May 2025 - FI.UP). This leadership change likely added an element of uncertainty during an already challenging period.
What signs were there, in hindsight?
Looking back at the past 6-12 months, we learn that while Clover’s topline growth remained stable, its underlying composition continuously deteriorated, with volume growth declining substantially.
Warning Signs Over the Past 6-12 Months
A comprehensive review of the past year reveals several warning signs that, in retrospect, foreshadowed Fiserv's current challenges:
1. Activist Investor Exodus
ValueAct Capital, a prominent activist investor, systematically reduced its position in Fiserv over the past year:
May 2024: Reduced stake by 13% to 3.7 million shares (News - May 2024 - FI.UP)
August 2024: Further decreased holdings by 70% to 1.1 million shares (News - August 2024 - FI.UP)
November 2024: Completely liquidated its entire position (News - November 2024 - FI.UP)
This progressive exit by a sophisticated investor with board representation (ValueAct partner Dylan Haggart joined Fiserv's board in July 2024) represented a significant red flag (News - July 2024 - FI.UP).
2. Wells Fargo Merchant Services Impairment
In September 2024, Fiserv announced a substantial non-cash impairment charge of $400-600 million related to its equity method investment in the Wells Fargo Merchant Services joint venture (FI 8-K 09/20/24 Material Impairments). This joint venture was set to expire on April 1, 2025, and while Fiserv maintained it wouldn't impact adjusted earnings, the size of the impairment suggested potential challenges in the merchant acquiring business.
3. Deteriorating Organic Growth Trends
Throughout 2024, Fiserv's organic growth showed signs of moderation:
Q3 2024: 15% organic growth (Fiserv, Inc., Q3 2024 Earnings Call, Oct 22, 2024)
Q4 2024: 13% organic growth (Fiserv, Inc., Q4 2024 Earnings Call, Feb 05, 2025)
Q1 2025: 7% organic growth (Fiserv, Inc., Q1 2025 Earnings Call, Apr 24, 2025)
This consistent deceleration occurred while the company maintained its full-year 2025 guidance of 10-12% organic growth, creating an increasingly implausible growth trajectory that required significant acceleration in subsequent quarters.
4. Clover Growth Composition Shifting
While Clover revenue growth remained strong throughout 2024 (28-29%), the composition of that growth shifted away from volume growth toward value-added services:
Q2 2024: 28% revenue growth on 17% volume growth (Fiserv, Inc., Q2 2024 Earnings Call, Jul 24, 2024)
Q3 2024: 28% revenue growth on 15% volume growth (Fiserv, Inc., Q3 2024 Earnings Call, Oct 22, 2024)
Q4 2024: 29% revenue growth on 14% volume growth (Fiserv, Inc., Q4 2024 Earnings Call, Feb 05, 2025)
Q1 2025: 27% revenue growth on 8% volume growth (Fiserv, Inc., Q1 2025 Earnings Call, Apr 24, 2025)
This widening gap between revenue and volume growth suggested increasing reliance on pricing and value-added services rather than core transaction growth, potentially masking underlying volume weakness.
Who else might be impacted, and what next?
From Portrait, we discover that other merchant acquirers or small business service providers could suffer from similar business spending deceleration or small business macro struggles.
Other Companies and Sectors Potentially Affected
The issues facing Fiserv have implications for several related companies and sectors:
1. Payment Processors and Merchant Acquirers
Companies with significant merchant acquiring businesses could face similar challenges, particularly related to small business spending deceleration and gateway conversion dynamics:
Global Payments (GPN): Direct competitor in merchant acquiring with similar business model (News - October 2024 - FI.UP)
FIS (FIS): Major competitor in both merchant acquiring and financial institution technology (News - January 2025 - FI.UP)
Block/Square (SQ): Direct competitor to Clover in small business point-of-sale (News - January 2025 - FI.UP)
Shift4 Payments (FOUR): Focused on payment processing for specific verticals (News - October 2024 - FI.UP)
PayPal (PYPL): Competes in digital payments and small business solutions (News - December 2024 - FI.UP)
2. Banking Technology Providers
Companies providing core banking and financial institution technology could experience similar growth challenges:
Jack Henry & Associates (JKHY): Direct competitor in core banking technology (News - April 2025 - FI.UP)
Q2 Holdings (QTWO): Digital banking platform provider for financial institutions
ACI Worldwide (ACIW): Payment systems provider for financial institutions and merchants
3. Small Business Service Providers
Fiserv's weak small business volume growth (3%) suggests potential broader weakness in small business spending that could impact:
Intuit (INTU): Provider of QuickBooks and other small business financial management tools
Bill.com (BILL): Accounts payable and receivable platform for small businesses
Toast (TOST): Restaurant-focused point-of-sale and management platform (News - October 2024 - FI.UP)
Looking ahead, the market will be focusing intently on Clover’s growth and the profitability of FI’s Merchant Solutions segment.
Key Debates and Concerns Going Forward
Several critical debates and concerns will likely dominate the Fiserv narrative in the coming quarters:
1. Clover Growth Sustainability
The revelation that previous Clover growth was partially driven by one-time gateway conversions raises fundamental questions about sustainable growth rates. Investors will closely monitor whether Clover can maintain its revenue growth trajectory despite decelerating volume growth, and whether value-added services penetration (which reached 24% in Q1 2025) can continue to expand (Fiserv, Inc., Q1 2025 Earnings Call, Apr 24, 2025).
2. Growth Acceleration Credibility
Fiserv maintained its full-year 2025 organic growth guidance of 10-12% despite Q1 performance of just 7%, implying significant acceleration in subsequent quarters (Fiserv, Inc., Q1 2025 Earnings Call, Apr 24, 2025). The credibility of this projected acceleration will be heavily scrutinized, particularly given the gateway headwind disclosure and broader economic uncertainties.
3. Margin Expansion Trajectory
Despite maintaining its adjusted operating margin expansion guidance of at least 125 basis points for 2025, Fiserv's Q1 2025 adjusted operating margin of 37.8% represented a significant sequential decline from Q4 2024's 42.9% (FI 8-K 02/05/25 Earnings Release, Fiserv, Inc., Q1 2025 Earnings Call, Apr 24, 2025). This raises questions about the sustainability of margin improvement, particularly in the Merchant Solutions segment.
NRG
After announcing a $12B acquisition of natural gas assets from LS Power, NRG saw its stock jump ~30% in the following few trading sessions.
What happened?
With Portrait, we discover the market appreciated that the acquisition will effectively double NRG’s generation capacity and prove EPS accretive in year one.
Unpacking NRG Energy's Recent Stock Strength
Recent Catalysts Driving Market Excitement
NRG Energy's stock has experienced remarkable strength recently, hitting a 52-week high of $119.50 in May 2025, representing a 62.8% gain for the period (News - May 2025 - NRG.UP). This impressive performance has been driven by several key catalysts:
1. Transformative LS Power Acquisition
The most significant driver of recent market excitement is NRG's announcement of a $12 billion acquisition of power assets from LS Power. This strategic transaction:
Doubles NRG's generation capacity to 25 gigawatts
Adds 13 gigawatts of natural gas capacity (11 GW in PJM/East, 2 GW in Texas)
Includes a 6-gigawatt commercial and industrial virtual power plant platform
Provides $1.6 billion of incremental adjusted EBITDA and $1 billion of free cash flow
Delivers 18% accretion to adjusted EPS in year one
Raises NRG's long-term adjusted EPS compound annual growth rate to 14% (from 10%)
This acquisition fundamentally reshapes NRG's competitive position, enhancing its ability to capitalize on the emerging power market supercycle (NRG Energy, Inc., Q1 2025 Earnings Call, May 12, 2025).
2. Exceptional Q1 2025 Financial Performance
NRG delivered the strongest first quarter adjusted EBITDA in company history, with results that significantly exceeded expectations:
Adjusted EPS of $2.68, representing an 84% increase compared to Q1 2024
Revenue increased to $8.59 billion from $7.43 billion year-over-year
GAAP net income of $750 million, up from $511 million in the prior year
Adjusted EBITDA rose to $1,126 million, a 29.4% improvement from $870 million in Q1 2024
Profit margin expanded to 8.5%, up from 6.6% in Q1 2024
This exceptional performance was driven by strong asset performance, expanded consumer margins, favorable weather, and natural gas optimization in the Northeast (Web - Research - NRG.UP).
3. Data Center Strategy Momentum
The market has responded positively to NRG's aggressive moves to capitalize on the data center boom:
Letters of Intent with data center developers targeting 400 MW of retail supply in the initial phase, with potential to scale to 6.5 GW
Strategic Project Development agreement with GE Vernova and Kiewit to develop up to 5.4 GW of new gas-fired generation projects
Secured slot reservation agreement with GE Vernova for 1.2 GW of 7HA gas turbines
Portfolio of 21 sites with unique attributes (water access, fiber connectivity, grid infrastructure) ideal for data center development
These initiatives position NRG to benefit from the explosive growth in power demand driven by AI and data centers (NRG 8-K 02/26/25 Earnings Release).
4. Texas Energy Fund Project Advancement
NRG is making significant progress on its Texas brownfield natural gas projects:
All three brownfield projects (totaling 1.5 GW) are now in the Texas Energy Fund (TEF) due diligence process
The T.H. Wharton plant (415 MW) has a turbine onsite and is expected to be operational by summer 2026
Cedar Bayou 5 CCGT project (689 MW) was selected to advance to the next phase of TEF diligence
Greens Bayou 6 (443 MW) was selected for TEF review in March 2025
These projects strengthen NRG's position in the rapidly growing ERCOT market and provide a clear path to adding valuable dispatchable generation (NRG 8-K 02/26/25 Earnings Release, News - March 2025 - NRG.UP).
What signs were there, in hindsight?
Looking through the past 6-12 months, we learn that capacity auction prices illustrated signs of undersupply, with rising prices and a budding premium for players with generation capacity.
Clues from the Past 6-12 Months
Looking back at developments over the past year, several indicators foreshadowed NRG's current strength:
1. Capacity Market Dynamics
A critical early signal came in July 2024, when PJM capacity auction results showed prices approximately 10 times higher than previous clearing prices. This dramatic increase reflected:
Strong demand combined with deterioration of baseload resources
Decreased supply in the auction combined with increased projected peak load
Grid reliability reforms impacting auction results
These auction results drove significant gains across the power generation sector, with NRG rising 4.6% while competitors like Constellation Energy (+15.1%), Vistra (+16.9%), and Talen (+17.35%) saw even larger gains (News - July 2024 - NRG.UP).
2. Strategic Acquisitions and Divestitures
NRG has executed several strategic transactions that have strengthened its portfolio:
March 2025: Acquired six power generation facilities from Rockland Capital for $560 million, adding 738 MW of modern, flexible natural gas-fired capacity at a significant discount to new build costs
September 2024: Sold Airtron HVAC business unit for $500 million (8.6x multiple on 2023 Adjusted EBITDA), allowing for capital redeployment to core business
October 2024: Issued $1.875 billion in senior notes to refinance debt and optimize capital structure
These transactions have improved NRG's asset mix, enhanced financial flexibility, and focused the company on its highest-return opportunities (News - March 2025 - NRG.UP, NRG 8-K 09/25/24 Regulation FD Disclosure, NRG 8-K 10/30/24 Entry into a Material Definitive Agreement).
3. Consistent Financial Outperformance
Throughout 2024, NRG demonstrated a pattern of exceeding expectations and raising guidance:
September 2024: Raised FY24 Adjusted EBITDA guidance to $3.525-3.675 billion from $3.3-3.55 billion
November 2024: Reported Q3 Adjusted EBITDA of $1.06 billion vs. FactSet consensus of $1.02 billion
February 2025: Reported full-year 2024 Adjusted EPS of $6.83, exceeding the raised guidance midpoint and representing a 45% year-over-year increase
This consistent outperformance built credibility with investors and demonstrated the strength of NRG's integrated business model (NRG 8-K 09/25/24 Regulation FD Disclosure, News - November 2024 - NRG.UP, NRG 8-K 02/26/25 Earnings Release).
4. Virtual Power Plant Partnership
In November 2024, NRG announced a strategic partnership with Renew Home and Google Cloud to develop a Virtual Power Plant (VPP) platform:
Target of 650 MW by 2030 and 1 GW by 2035
Leverages Google Cloud's AI and cloud platforms
Provides instantaneous dispatch value during peak events
Creates $110 million in potential annual recurring margin at 650 MW scale
Delivers capacity at approximately 1/10 the cost of a new peaker plant
This innovative partnership positions NRG at the forefront of the distributed energy resource revolution and creates a significant new growth avenue (NRG Energy, Inc., Q3 2024 Earnings Call, Nov 08, 2024).
Who else might be impacted, and what next?
With generation capacity now coming at a premium, other independent power producers or utilities with generation assets could benefit.
Companies and Sectors Potentially Affected
NRG's strategic initiatives and market positioning have implications for several related companies and sectors:
1. Independent Power Producers (IPPs)
Other IPPs are likely to benefit from the same favorable market dynamics driving NRG's success:
Vistra (VST): Shares similar exposure to ERCOT and PJM markets; stock has shown correlated movements with NRG
Constellation Energy (CEG): Benefits from capacity market strength and nuclear fleet value in tight power markets
Talen Energy (TLN): Exposed to similar capacity market dynamics in PJM
These companies have already seen significant stock appreciation alongside NRG, with gains of 15-17% reported in July 2024 following the PJM capacity auction results (News - July 2024 - NRG.UP).
2. Utilities with Generation Assets
Regulated utilities with significant generation portfolios could see mixed impacts:
American Electric Power (AEP): Reported significant commercial load growth due to economic development
Southern Company (SO): Coal-fired power plants received EPA exemptions similar to NRG
Entergy (ETR): Exposed to MISO market dynamics
CenterPoint Energy (CNP): Texas utility facing surging demand in Houston
These companies may benefit from load growth but face different regulatory frameworks than competitive generators like NRG (News - February 2025 - NRG.UP, News - April 2025 - NRG.UP).
3. Equipment Manufacturers and EPC Contractors
NRG's growth initiatives create opportunities for equipment suppliers and contractors:
GE Vernova (GEV): Direct beneficiary of NRG's turbine reservation agreement and development partnership
Kiewit: Engineering, procurement, and construction partner for NRG's development projects
Siemens Energy: Potential beneficiary of increased gas turbine demand industry-wide
These companies stand to benefit from the broader trend of increased investment in dispatchable generation capacity (NRG 8-K 02/26/25 Earnings Release).
Taking a forward view, one of NRG’s core debates is whether demand will continue to grow, as NRG’s management believes we are entering a “power demand supercycle.”
Key Debates and Concerns Going Forward
Despite NRG's strong positioning, several key debates and concerns remain:
1. Power Market Dynamics and Sustainability
The fundamental question is whether current favorable market conditions will persist:
Supply-demand balance: ERCOT projecting 56 GW of incremental load by 2028, but new supply is also being developed
Power price sustainability: Forward curves may not fully reflect the structural changes in demand
Weather sensitivity: Extreme weather events can drive significant volatility in results
Natural gas price trajectory: Power margins are heavily influenced by natural gas prices
NRG's management has indicated they believe this is the beginning of a "power demand supercycle," but investors debate whether current conditions represent a new normal or a temporary imbalance (NRG Energy, Inc., Q4 2024 Earnings Call, Feb 26, 2025).
2. Execution Risk on Strategic Initiatives
NRG's growth strategy involves several complex initiatives with execution risks:
Data center partnerships: Timeline uncertainty for development projects
Texas Energy Fund projects: Regulatory approvals and construction timelines
LS Power acquisition: Integration challenges and realization of projected synergies
Virtual Power Plant scaling: Customer adoption rates and technology implementation
The company's ability to execute these initiatives on time and on budget will be critical to achieving its projected growth rates (NRG Energy, Inc., Q1 2025 Earnings Call, May 12, 2025).
3. Regulatory and Policy Environment
NRG operates in a heavily regulated industry with policy uncertainty:
ERCOT market design: Potential changes to market rules in Texas
PJM capacity market: Future auction results and potential market reforms
Environmental regulations: Evolving EPA rules on emissions and climate
Federal energy policy: Potential shifts following elections or administration changes
Regulatory developments could significantly impact NRG's generation fleet economics and growth opportunities (NRG 10-K FY 2024).
To dive further into NRG, FI, or any other public company, head over to Portrait!