Vistra Corp. VST is currently trading at a premium valuation compared to its Zacks Utility Electric Power industry, with its forward 12-month price-to-earnings (P/E) ratio at 22.6X. The industry is currently trading at 16.79X.
Vistra is currently trading at a premium compared with another operator in the industry Duke Energy Corporation DUK having a strong nuclear fleet. The current P/E- F12M ratio of DUK is 19.1X.
Vistra Stock Trading at a Premium
Image Source: Zacks Investment Research
Is Vistra’s premium valuation justified at this present moment? Let’s have a look at its earnings estimates movement, earnings surprise history, and fundamental factors that can impact its valuation.
High Debt Levels & Costs Raise Concerns for VST Stock
Vistra’s total debt to capital currently stands at 68.5% compared with its industry average of 60.05%. The acquisition of Energy Harbour Corporation raised the debt level of Vistra Corp.
The current ratio of Vistra at the end of the second quarter of 2024 was 0.98. A ratio of less than 1 indicates that VST presently has more current liabilities compared with its current assets, which can lead to liquidity problems in the near future.
Vistra’s operating costs and selling, general and administrative expenses were up 30% and 21.6%, respectively, in the first six months of 2024. The high expenses adversely impacted the operating income and net income of Vistra in the first six months of 2024, which were down 48.08% and 58.7%, respectively, from the year-ago period.
Vistra’s Negative Earnings Surprise
Vistra has failed to surpass earnings expectations in the last four quarters, with the reported average negative surprise being 83.33%.
Image Source: Zacks Investment Research
VST Stock’s Earnings Estimates Are Down Near-Term
The Zacks Consensus Estimates for Vistra’s 2024 and 2025 earnings per share are showing a decline in the last 60 days. 2024 and 2025 earnings estimates were down 2.67% and 13.7%, respectively, in the aforesaid period. The downward revision in earnings estimates indicates analysts’ declining confidence in the stock.
The downward movement in earnings estimates is reflected in VST’s current Zacks Rank, which is Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Image Source: Zacks Investment Research
Factors Acting as Tailwind for VST Stock
The clean electricity demand from US Data centers and Permian electrification is expected to boost demand by 55 gigawatts (GW) by 2030 from 2023 levels in the geographies the company serves. VST’s ability to produce a high volume of emission-free electricity from its solar, natural gas, nuclear, and other alternative energy sources is the primary contributor to its performance.
Vistra has plans to expand its operation and clean energy production volumes through organic and inorganic initiatives. The acquisition of Energy Harbor Corporation added nearly 4,000 megawatts (MW) of 24/7 nuclear generation capacity to Vistra’s existing capacity of 2,400 MW. Per a Business Insider report, major tech companies are going to invest nearly $1 trillion in data centers in the next five years. Vistra, with its 6,400 MW power production capacity from its nuclear fleet, is poised to benefit from the rising demand from data centers.
Vistra has a comprehensive hedging program. Substantial generation volumes for 2024 and 2025 have been hedged as well as recent forward price curves support VST’s earnings guidance range for 2024. PJM Auction results for the 2025/2026 planning year will boost its performance in 2025 and beyond.
Vistra owns and operates large energy storage projects, which not only support the grid and provide stability during huge power demand but promote the development of renewable energy projects. Currently, 1,020 MW storage projects are operational and new long-duration storage projects are coming up to meet the rising demand and boost performance of Vistra.
Vistra Outperforms Industry, Sector & S&P 500 Last Month
Vistra’s shares have gained 12.9% in the last month, outperforming its industry, sector and Zacks S&P 500 Composite’s return in the same time frame.
Image Source: Zacks Investment Research
Vistra Increases Shareholder Value
Vistra expects to execute at least $2.25 billion of share repurchases in 2024 and 2025 and at least $1 billion in 2026. The company utilized $4.25 billion since November 2021 to repurchase its shares.
Vistra also plans to pay $300 million in aggregate common dividends each year from 2024 to 2026. Check VST’s dividend history here.
Summing Up
Vistra’s earnings per share estimates have gone down over the last 60-day period, and the company failed to surpass estimates in the last four reported quarters.
The company operates in a region where demand for clean electricity is rising, and VST is increasing its clean energy generation capability through acquisition and organic means to serve customers and benefit from the same.
Despite positive traits, investors can currently stay clear from this Zacks Rank #5, stock having a Value Score of F.
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