A Derivative Play On The AI Craze
AI has been the narrative for the past year and a half, however, AI needs data centers and computing power. This means shit loads of energy is required for the ever-expanding Artificial intelligence. The biggest winner, so far, from this, has been and will probably continue to be Vistra Corp and I will tell you why below.
First, let’s take a look at who Vistra is
Vistra is an integrated retail electricity and power generation company. Its portfolio includes natural gas and coal, as well as nuclear, solar, and battery energy storage facilities.
Vistra owns four nuclear generation facilities, that can power 3.2 million U.S. homes. It owns the second-largest competitive nuclear fleet and boasts the second-largest energy storage capacity in the country. This includes one of the world's largest battery energy storage facilities. The company is also actively expanding its portfolio of solar assets.
Current situation in the company
Vistra recently reached a significant milestone by being included in the S&P500 at the beginning of May. The company had a stellar first half of 2024 going up by 125%, lagging only behind Nvidia and Super Micro Computer.
On the 1st of March VST -0.35%↓ closed its acquisition of Energy Harbor adding a 4,000-megawatt nuclear generation fleet and around 1M retail customers.
The acquisition is expected to add around $700 million to 2024 earnings, with identified synergies increasing to $150 million by 2025.
Operational highlights:
Their hedging program helped them benefit amid volatile weather, achieving an average realized power price of over 50/MWh compared to market prices below 30/MWh.
Positive customer count growth across Texas, Midwest, and Northeast.
Key Financial Metrics
Adjusted EBITDA for Ongoing Operations: $813 million (nearly 50% increase year-over-year)
Generation EBITDA: $841 million
Retail EBITDA: -$28 million
Net Leverage: ~3x (expected to be below 3x by year-end 2024)
Outlook and Financial Guidance:
2024 Guidance: Adjusted EBITDA for ongoing operations is projected between $4.55 billion and $5.05 billion, with adjusted free cash flow before growth ranging from $2.2 billion to $2.7 billion.
Long-Term Projections: By 2025, adjusted EBITDA is anticipated to reach $5 billion to $5.5 billion, and more than $6 billion by 2026. The company aims to achieve a 55%-60% EBITDA to free cash flow conversion rate from 2025 onward.
Market Dynamics and Growth Drivers:
Demand Growth: Significant power demand increases are expected from data centers, industrial reshoring, electrification, and population growth. Texas load growth is projected at 1.6%-6% annually through 2030.
Power Market Trends: Increasing power prices in Texas and PJM markets, with forward curves indicating tighter grid conditions and ongoing load growth.
Technical setup
Source: Tradingview
The price is currently sitting 20% below the May peaks after a strong measured move-up. This can be a great entry point for everyone who missed the initial stretch upwards.
The price is also holding at the 50-day moving average and has been consolidating throughout most of June.
The RSI is at one of its lowest levels since the October bottom.
All in all, it looks like a great opportunity to enter with my prediction of the success of this play is between 60 and 75 percent.
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The MOM returns are at a 2-year low with signs of reversing. This signals to me that we might be at the bottom of the correction.
Wallstreet outlook
Out of 13 analysts that give stock ratings to Vistra Corp. we can see 11 are giving it a strong buy.
The current price sits 17% below the minimum price forecast and more than 50% below the maximum projected price target.
This is a great sign that the company is trading at a discount and that these levels can be a great opportunity for entry.
The company is heavily owned by institutions, with the biggest shareholders being Vanguard, BlackRock, and Fidelity, collectively owning more than a quarter of the company.
The latest May SEC filings show predominantly buy positions.
Conclusion
Overall, I expect that the price will continue to go up, supported by the strong earnings and revenue growth expectations and the favorable technicals.
First, let’s take a look at who Vistra is
Vistra is an integrated retail electricity and power generation company. Its portfolio includes natural gas and coal, as well as nuclear, solar, and battery energy storage facilities.
Vistra owns four nuclear generation facilities, that can power 3.2 million U.S. homes. It owns the second-largest competitive nuclear fleet and boasts the second-largest energy storage capacity in the country. This includes one of the world's largest battery energy storage facilities. The company is also actively expanding its portfolio of solar assets.
Current situation in the company
Vistra recently reached a significant milestone by being included in the S&P500 at the beginning of May. The company had a stellar first half of 2024 going up by 125%, lagging only behind Nvidia and Super Micro Computer.
On the 1st of March VST -0.35%↓ closed its acquisition of Energy Harbor adding a 4,000-megawatt nuclear generation fleet and around 1M retail customers.
The acquisition is expected to add around $700 million to 2024 earnings, with identified synergies increasing to $150 million by 2025.
Operational highlights:
Their hedging program helped them benefit amid volatile weather, achieving an average realized power price of over 50/MWh compared to market prices below 30/MWh.
Positive customer count growth across Texas, Midwest, and Northeast.
Key Financial Metrics
Adjusted EBITDA for Ongoing Operations: $813 million (nearly 50% increase year-over-year)
Generation EBITDA: $841 million
Retail EBITDA: -$28 million
Net Leverage: ~3x (expected to be below 3x by year-end 2024)
Outlook and Financial Guidance:
2024 Guidance: Adjusted EBITDA for ongoing operations is projected between $4.55 billion and $5.05 billion, with adjusted free cash flow before growth ranging from $2.2 billion to $2.7 billion.
Long-Term Projections: By 2025, adjusted EBITDA is anticipated to reach $5 billion to $5.5 billion, and more than $6 billion by 2026. The company aims to achieve a 55%-60% EBITDA to free cash flow conversion rate from 2025 onward.
Market Dynamics and Growth Drivers:
Demand Growth: Significant power demand increases are expected from data centers, industrial reshoring, electrification, and population growth. Texas load growth is projected at 1.6%-6% annually through 2030.
Power Market Trends: Increasing power prices in Texas and PJM markets, with forward curves indicating tighter grid conditions and ongoing load growth.
Technical setup
Source: Tradingview
The price is currently sitting 20% below the May peaks after a strong measured move-up. This can be a great entry point for everyone who missed the initial stretch upwards.
The price is also holding at the 50-day moving average and has been consolidating throughout most of June.
The RSI is at one of its lowest levels since the October bottom.
All in all, it looks like a great opportunity to enter with my prediction of the success of this play is between 60 and 75 percent.
Enjoying this newsletter? Share it with a friend.
The MOM returns are at a 2-year low with signs of reversing. This signals to me that we might be at the bottom of the correction.
Wallstreet outlook
Out of 13 analysts that give stock ratings to Vistra Corp. we can see 11 are giving it a strong buy.
The current price sits 17% below the minimum price forecast and more than 50% below the maximum projected price target.
This is a great sign that the company is trading at a discount and that these levels can be a great opportunity for entry.
The company is heavily owned by institutions, with the biggest shareholders being Vanguard, BlackRock, and Fidelity, collectively owning more than a quarter of the company.
The latest May SEC filings show predominantly buy positions.
Conclusion
Overall, I expect that the price will continue to go up, supported by the strong earnings and revenue growth expectations and the favorable technicals.
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