6. Vistra Corp. (NYSE:VST)
Third Point’s Stake Value: $311,335,500
Number of Hedge Fund Holders: 79
Vistra Corp. (NYSE:VST) is a power generation company that is also involved in electricity generation and wholesale energy purchases and sales. The company has about 5 million customers and operates a 41,000-megawatt portfolio of natural gas, coal, nuclear, and solar assets, as well as battery storage facilities. We discussed above why Loeb’s bullish on Vistra Corp. (NYSE:VST) and how the company stands to benefit from AI-driven electricity demand and also the shift to electric vehicles. Third Point Management stated the following regarding Vistra Corp. (NYSE:VST) in its first quarter 2024 investor letter:
“Vistra Corp. (NYSE:VST) is one of the largest independent power producers (“IPPs”) and retail electricity providers in the country. In 2023, Vistra’s natural gas, nuclear and coal plants generated over 20% of electricity consumed in Texas.
Unlike regulated utilities, where profits are determined by capital invested, Vistra operates in deregulated markets (primarily ERCOT and PJM), where they generate and sell electricity at market prices. Historically, Vistra has been valued at a steep discount to both the regulated utility sector and the broader market in part due to the challenging fundamentals of merchant power. Stagnant domestic electricity demand combined with an oversupply of natural gas has made US electricity prices among the lowest in the world. Meanwhile, significant growth in subsidized renewable generation has created major intraday price volatility in Vistra’s core markets, with power prices sometimes going negative during periods of abundant sunshine or wind. Bankruptcies, including Vistra’s former parent company TXU in 2014, have become commonplace in the sector over the last decade…” (Click here to read the full text)”
But why is Vistra Corp. (NYSE:VST) particularly on Wall Street’s radars (and it is)? In Q1, 79 hedge funds held positions worth $3.32 billion in the company, up from 56 positions in the preceding quarter with stakes worth $1.30 billion. Analysts and investors have been touting the stock as a “hidden AI play”, and think it’s among the top beneficiaries of power demand from data center hyperscalers and generative AI applications. Wall Street’s interest spiked after the company closed its acquisition of Ohio-based Energy Harbor (operator of the second largest non-regulated nuclear fleet in the US) in March for $3.43 billion.
Guggenheim analyst Shahriar Pourreza who holds a Buy recommendation and a Street-high price target of $133 on Vistra Corp. (NYSE:VST) thinks the company is a “unicorn” for its portfolio of both gas and nuclear power plants. Pourreza further said in his note to clients that data centers are exploring 24-hour power sources that are clean and “nuclear plants are a very strong avenue for that”, further adding to his thesis for the stock.
Analysts and investors expect Vistra Corp. (NYSE:VST) to follow suit and pen contracts with hyperscalers, similar to those done between Constellation Energy and Microsoft for nuclear power back in June 2023 and Amazon’s 10-year power agreements with nuclear energy producer Talen Energy. Vistra Corp. (NYSE:VST) is one of Dan Loeb’s top growth stocks picks.
Is it too late to get in on the VST action? Before we answer that, here are some quick facts: Over the past 10 years, Vistra has grown its revenue by 8.1%, however it has struggled with profitability due to its unprofitable coal operations (which it shut down in 2022). After reporting losses for several years up to 2022, the group swung to a profit in 2023 ending the year with a net income of $1.34 billion. Analysts anticipate VST to grow its EPS by 45% in 2024. Over the past 12 months, VST has gained 243% and the Street’s median 1-year target implies an upside of 33%. We think VST is worth exploring as it trades at 19 times its forward earnings, lower than peers Bloom Energy (PE of 131.5x) and Constellation Energy (PE of 27x), and stands to capitalize on favorable power demand trends from hyperscalers, generative AI, and electric vehicles.
