To The Moon

The U.S. stock market indexes closed mostly lower on the day but made new all-time weekly closing highs as buyers climbed the wall of worry. The best-performing concepts are marine ports, independent power producers & energy traders and AI concept.

Considering the different perceptions of the stock, this time TigerPicks chose $Vistra Energy Corp.(VST)$ to have a fundamental highlight to help users understand it better.

$Vistra Energy Corp.(VST)$

Vistra Energy is an integrated power company based in Irving, Texas. Through its retail and generation businesses which include TXU Energy, Homefield Energy, Dynegy, and Luminant, Vistra operates in 12 states and six of the seven competitive markets in the U.S., with about 6,000 employees.

Vistra's retail brands serve approximately 2.9 million customers and its generation fleet totals approximately 41,000 megawatts of natural gas, nuclear, coal, and solar facilities.

Why $Vistra Energy Corp.(VST)$?

The company is an integrated retail and electric power generation business. Across the 20 states (and DC) in which it operates, it serves about 3.5 million customers. In 2022, its generation fleet boasted 37,000 MW of generation capacity, with its portfolio consisting of assets that are based not only on natural gas, but also on nuclear, coal, and solar. The firm also has battery energy storage facilities.

Although coal is a four-letter word that is taboo in the energy markets, it is important to note that management has been working hard to move away from it. Since 2010, the company has retired over 14,500 MW of coal and gas power plants, allowing it to significantly reduce its greenhouse gas emissions. Management has prioritized a move in the direction of cleaner energy. As you will see shortly, the firm is undergoing a rather significant change at this time. But it would be helpful to first touch on its fundamental performance up to this point.

Financials

Author - SEC EDGAR Data

In some respects, Vistra Corp is a really attractive prospect. Take revenue. From 2020 through 2022, the business has seen its sales rise from $11.44 billion to $13.73 billion. Rising energy costs have been a key driver of this expansion. However, on the bottom line, the company has seen some real pain. It went from generating net profits of $636 million in 2020 to generating a net loss of $1.38 billion in 2022. Operating cash flows have been all over the map. Though the picture does change a little bit for the better if we adjust those figures for working capital changes. The only profitability metric to show consistent year over year changes of a positive nature has been EBITDA. It has managed to grow from $1.09 billion to $2.99 billion over the past three years.

Financials

Author - SEC EDGAR Data

As you can see in the chart above, the 2023 fiscal year has been a big improvement for the company. The increase in revenue for the first nine months of 2023 to $11.70 billion from the $9.86 billion generated one year earlier was driven by improved performance at the company's facilities, as well as by rising demand because of hot weather, particularly in Texas. These improvements pushed the company from a net loss of $1.09 billion last year to a profit of $1.57 billion this year. Operating cash flow shot up from $92 million to $4.57 billion, while the adjusted figure for it rose a more modest but still impressive amount from $2.32 billion to $2.98 billion. And lastly, EBITDA for the company managed to grow from $2.26 billion to $3.17 billion.

Presentation

When Vistra Corp announced updated financial guidance for the third quarter of its 2023 fiscal year, as well as initial guidance for 2024, the likes of which can be seen in the images below, management did not factor into the equation anything associated with this transaction. That means we only have part of the story of the fundamental picture moving forward. But of course, this is fairly simple to rectify.

Presentation

Vistra Corp

Presentation

Vistra Corp

Presentation

Vistra Corp

Due to hedges and synergies that can grow to be up to $125 million, Energy Harbor is expected to generate around $700 million worth of EBITDA for 2024 and $800 million in 2025. In the long run, as hedges roll off, this number should grow to $900 million per annum. For the purpose of being conservative, I have decided to use the $700 million figure in my own calculations. Naturally, EBITDA does not need anything stripped from it. But operating cash flow does. For the $3.03 billion in debt, I have assumed an 8% annual interest rate. This is based on the December 11th press release that Vistra Corp issued in which the company discussed that it was issuing senior notes in order to refinance some other debt. The highest interest rate on those was 7.75%.

Estimates

Author - SEC EDGAR Data

If this all comes to fruition as planned, EBITDA for this year, factoring in the acquisition as though it occurred at the start of the year, should be $4.725 billion. Adjusted operating cash flow, which strips out $150 million of preferred distributions since those are also required cash outflows, should be around $4.54 billion. As you can see in the chart above, I did the same kind of calculations using data from 2022 and forecasts for 2024.

Trading Multiples

Author - SEC EDGAR Data

Using these results, I then was able to value the company as shown in the chart above. The stock is trading quite cheap on an absolute basis, especially if we use the results expected for 2023.

It's also worth noting that Seeking Alpha’s rating system also has its own assessment of similar firms as well. As you can see in the images below, Vistra Corp has been granted a higher quality than any of the five firms except for one of them. In my view, when coupled with how cheap the stock is on both an absolute basis and relative to similar firms, I would say that this makes the enterprise truly appealing.

Screener

Seeking Alpha

Screener

Seeking Alpha

Stock Price Forecast:

Here are the target price forecasts for the next 12 months from analysts.

Based on 6 Wall Street analysts offering 12 month price targets for Vistra Energy in the last 3 months. The average price target is $59.00 with a high forecast of $70.00 and a low forecast of $48.00. The average price target represents a -14.60% change from the last price of $69.09.

Resource:

https://seekingalpha.com/article/4658299-vistra-corp-a-green-transformation-with-significant-upside-potential

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