Putting Vistra in Perspective Putting VST in perspective:
1. VST is launched a $1.5Bn share repurchase program that began this year (they previously had suspended it to be prudent in regards to COVID and to focus FCF on paying down debt).
2. VST (at the current share price of $20.99 and a 2021 FCFbG of $2,165BN) yields a 20%+ FCF yield which is not expected to decrease in the foreseeable future. If their investment/project minimum hurdle rate is in the mid-teens (e.g., 16%), it makes sense for them to view a share repurchase like an investment/project up to $27.57. Given the level of certainty of a share repurchase, one could argue that the minimum hurdle rate would be lower but let's leave it at $27.57 for a second to be conservative.
3. For further validation why that share repurchase level is realistic, back in 2019 when the company was less profitable, ladened with more coal plants, had more leverage, faced higher interest rates, had lower credit ratings, and less growth prospects, the company executed significant share purchases averaging $25/share (NOTE: This is the average, not the maximum).
4. Additionally, the ratings agencies are all indicating an IG rating this year with multiple up-ratings last year to one notch below IG and statements indicating to expect the IG rating in the second half of 2021. What does that mean? It means: a. lower costs of capital, b. attraction by institutional investors who are chartered/limited to institutional investments, c. Improved approval/bid rates from regulatory agencies on both the local, state and federal levels, and d. better terms with partners who price in accordance with counterparty risk.
5. If that's not enough, don't forget that these guys have topped their forecasts since going public and what makes them different and able to do so in their competitive markets (e.g., ERCOT) is their focus on "integrated/vertical" development which improves their margins and reduces volatility of their earnings streams.
6. They have hit their leverage target in Q4 of 2020 and that leverage ratio will continue to decrease as their top line adjusted EBITDA numbers continue to rise.
7. They just increased their dividend payouts for 2021 which will take effect in 2021 with an eye toward increasing it further in 2022.
8. They now have the largest Energy Storage System in the world with dozens of other Energy Storage systems across the Texas, California and permitting in other states beyond those two. Among the utility players in the world, they are the leader in ESS and their footprint is getting larger (with even hints of some international plays as well.....you can do your own research to find out about that).
9. They have a pipeline of ESS/Solar deals already confirmed for this year and next which will soon replace all their coal plant generation and are set on contracts/agreements with attractive terms.
10. Don't believe me? Well talk to the guys who get paid to do this for a living:
Morgan Stanley, UBS, BMO Capital and Credit Suise all have Price Targets over $30 ranging from $31 - $34 per share.
Already, the stock, as predicted with the share repurchase program just starting, is seeing a run-up and that run-up is only beginning.
I wouldn't be surprised to see the stock run-up well past $25 per share and have a floor value of $27.5 in the next six months, and once the IG rating goes through, don't be surprised to see it push past $30 per share.
VST is a solid bet that weathered/thrived during the Coronavirus and will continue to do so as it has done every quarter since going public.
Enjoy the ride and Happy Investing!