Vistra Earnings: Good Execution and Profitability Have Sent Stock Soaring

We are reaffirming our $24 fair value estimate for Vistra VST after the company reported $1.0 billion in adjusted EBITDA in the second quarter, up 33% from the second quarter of 2022. Results are on track to meet our full-year outlook. We are reaffirming our no-moat rating.

Vistra’s hedging strategy initiated last year is paying off, protecting generation margins as energy prices fall. Generation adjusted EBITDA was up 50% from last year during the first half, more than offsetting a 17% drop in adjusted retail EBITDA year to date. Warm summer weather and lower price volatility should help retail earnings in the second half.

Incremental hedging this year is pushing adjusted EBITDA estimates for 2024-25 toward management’s $3.7 billion-$3.8 billion guidance, excluding Energy Harbor. Vistra is nearly fully hedged for 2024, and we expect to raise our EBITDA forecasts slightly after incorporating the new hedges.

Vistra’s stock traded near our fair value estimate as recently as late May, but is up 27% in the past two months, including a 5% jump as of midday Aug. 9.

We expect the retail-wholesale strategy to continue producing substantial free cash flow. The board raised the dividend for the seventh consecutive quarter to $0.82 per share annualized, up 12% year over year, and we expect continued dividend growth. We also expect management to finish its $1.35 billion of authorized share buybacks by the end of 2024, representing 12% of its current market capitalization. With the stock trading above our fair value estimate, the buybacks don’t have a material impact on our valuation.

Vistra’s growth capital allocation will be key to watch. We previously raised our fair value estimate by $1 per share, assuming the $5.7 billion Energy Harbor acquisition closes by year-end. We expect a brief slowdown in Vistra’s clean energy investments after it recently completed its Moss Landing battery storage expansion.