To The Moon

U.S. stock futures plunged as fiscal concerns deepened following Moody's downgrade of the U.S.' long-standing triple-A credit rating to Aa1 last Friday. U.S. large-cap stocks approached — but narrowly avoided — bear-market territory, dropping 19% from February's peak to mid-April's low.

The best-performing concepts is Independent Power Producers & Energy Traders. 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 Corp., together with its subsidiaries, operates as an integrated retail electricity and power generation company. The company operates through six segments: Retail, Texas, East, West, Sunset, and Asset Closure. It retails electricity and natural gas to residential, commercial, and industrial customers across 20 states in the United States and the District of Columbia.

With it already triggering the utility company's more compelling valuations, significantly aided by the robust FY2024 performance and the reiterated FY2025/2026 guidance, I had upgraded the stock to a Buy upon a moderate retracement to the 200-day moving averages of $118s.

VST 1Y Stock Price

Since then, VST has already found a bottom at the $100s while recording an impressive recovery by +43.6%, with a similar recovery also observed in its nuclear utility sector peers/nuclear related stocks.

Much of its tailwinds are naturally attributed to the bottoming in market sentiments by early April 2025, as the early Q1 '25 earning season also brings forth the much-needed clarity surrounding the durable AI demand and the ongoing data center capex boom.

The same has been similarly reiterated by numerous market leaders/hyperscalers, including $Taiwan Semiconductor Manufacturing(TSM)$ $Alphabet(GOOG)$ $Alphabet(GOOGL)$ $Microsoft(MSFT)$ in the recent earnings calls.

Given that VST's prior 2024 stock price gains are attributed to "a rising awareness among investors of the increased power requirements for artificial intelligence and broad electrification," it is unsurprising that a trading floor has seemingly materialized during the worst of the recent meltdown.

This is significantly aided by the robust performance observed in VST's FQ1 '25 earnings call, with revenues of $3.93B (-2.7% QoQ/+28.8% YoY) and adj EBITDA of $1.21B (-2.4% QoQ/+53% YoY).

This is on top of the management's reiterated FY2025 Ongoing Operations adj EBITDA guidance of $5.8B at the midpoint (+2.6% YoY) and FY2026 guidance at $6.5B (+12% YoY), with it underscoring its high-growth and profitable prospects.

VST's Reported Gas Prices

VST's Reported Gas Prices

Much of the tailwinds are likely attributed to VST's higher realized prices for the generation segment in FQ1 '25, aided by the two additional months of contribution from the Energy Harbor acquisition, the higher retail demand by +27% YoY, and the management's comprehensive hedging program at $567M (inline QoQ/+222.1% YoY).

Given that the management has already hedged approximately 100% of its expected generation volumes for 2025 and approximately 90% for 2026, we believe that its near-term prospects are likely to remain stable indeed.

This is despite OPEC+ already accelerating their output hikes while triggering the drastic moderation in crude oil/natural gas spot prices nearer to pre-pandemic levels, with it tempering any risks from the volatile near-term spot prices.

The Consensus Forward Estimates

The Consensus Forward Estimates

Given the reiterated FY2025/FY2026 guidance, we can understand why the consensus has already raised their forward estimates, with VST expected to chart an accelerated top/bottom-line growth at a CAGR of +9.1%/+8% through FY2027.

This is compared to the original estimates of +6.6%/+7.1%, while nearing its 5Y historical growth profile at a CAGR of +7.8%/+10.7%, respectively, with it apparent that the company is likely to benefit from the ongoing data center/electrification capex boom.

This is especially since we are looking at an ongoing increase in data center related power demand at a CAGR of +4% through 2030, aided by the retail demand growth ahead.

Most importantly, given that VST's energy generation remains largely concentrated through gas, with it comprising 59% of its overall capacity in FQ1 '25 and nuclear/renewables at 20%, we believe that its positioning as a clean energy generator remains highly strategic to its future prospects as well.

These developments also underscore why the management has highlighted that "'26 is looking strong, and we see '27 and even '28. We see that holding similar strength."

VST Valuations

For now, the overly fast and furious rally since the recent bottom has already triggered VST's seemingly lofty FWD EV/EBITDA valuations of 11.41x and FWD P/E non-GAAP valuations of 20.59x.

This is up from the recent bottom of 8.75x/13.86x and 5Y mean of 8.71x/16.85x, while nearing the 1Y mean of 11.13x/18.06x, respectively.

Even so, when comparing VST's FWD PEG non-GAAP ratio of 0.99x against its nuclear utility sector peers/nuclear related stocks, including:

• $Southern(SO)$ at FWD PEG non-GAAP ratio of 3.44x,

• $Constellation Energy Corp(CEG)$ at 4.32x,

• $Rolls Royce Holdings plc(RYCEY)$ at 2.12x, and

• $BWX Technologies Inc(BWXT)$ at 2.59x,

we believe that the former's high-growth investment thesis remains compelling despite the recent recovery, thanks to its growing data center-related monetization opportunities.

Even so, given VST's relatively expensive valuations compared to its historical mean, we believe that a moderate pullback may be necessary for an improved return profile, one that we shall further discuss in the next segment.

So, Is VST Stock A Buy, Sell, or Hold?

VST 3Y Stock Price

For now, VST has already lost -29.4% or the equivalent -$17.48B of its market capitalization from the 52-week heights, with the meltdown already triggering the stock's trading cadence nearer to its 50/100/200 day moving averages.

The sell-off has also triggered the narrower gap to our prior fair value estimates of $133.90 offered in our last article, based on the FY2024 adj EBITDA per share of $14.56 (+22.4% YoY) and the prior 1Y FWD EV/EBITDA mean of 9.2x.

Based on VST's reiterated FY2026 adj EBITDA guidance of $6.5B at the midpoint (+12% YoY) and the 339.3M shares outstanding, we are looking at a resultant FY2026 adj EBITDA per share guidance of $19.15 (expanding at a 2Y CAGR of +14.6%).

Combined with the prior 1Y FWD EV/EBITDA mean of 9.2x (not too far from its 5Y mean of 8.71x), there remains an excellent upside potential of +24.9% to our long-term price target of $176.10 as well, with it underscoring why the recent meltdown has been a boon for those looking to add.

This is aided by the more than decent dividend payout hike to an annualized sum of $0.90 per share (+0.67% QoQ/+3.4% YoY), giving long-term shareholders a regular income and/or a chance to subscribe to a DRIP program while accumulating additional shares on a quarterly basis.

VST's Seemingly Over Bought Levels

VST's Seemingly Over Bought Levels

On the other hand, despite VST's moderating short interest volume by -42.1% on a YoY basis as the bulls also defend its recent upward recovery, it appears that the stock is increasingly overbought at current levels.

The same conclusion may also be derived in its elevated Money Flow Index & Williams %R Momentum indexes above (in red oval), with it underscoring why the stock may potentially stagnate at current levels.

As a result, while we may maintain our Buy rating for the VST stock, it comes with the caveat that interested investors observe the price movement for a little longer, since it remains to be seen if the stock may be able to sustain its upward momentum ahead.

Patience may be more prudent in the meantime, for an improved margin of safety.

Stock Price Forecast:

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

Based on 9 Wall Street analysts offering 12 month price targets for Vistra Energy in the last 3 months. The average price target is $163.63 with a high forecast of $192.00 and a low forecast of $120.00. The average price target represents a 4.48% change from the last price of $156.62.

Resource:

https://seekingalpha.com/article/4785090-vistra-a-great-volatility-hedge-through-2026-reiterate-buy

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