2. Vistra Corp. (NYSE:VST)
Number of Hedge Fund Investors: 92
Jim Cramer points out that Vistra Corp. (NYSE:VST) has emerged as an unexpected growth utility, with its stock rising sharply due to its nuclear energy investments and the increasing electricity demand. He compares Vistra Corp. (NYSE:VST) to CeeDee Lamb of the stock market, noting that both are based in Dallas—Lamb plays for the Cowboys, a team Cramer nearly drafted. Cramer also highlights that Vistra Corp. (NYSE:VST) is one of the few companies challenging NVIDIA Corporation (NASDAQ:NVDA) in terms of performance.
“Vistra Energy came out of nowhere as a growth utility, with its stock soaring thanks to the company’s nuclear exposure and the realization that we desperately need more electricity in this country. I call Vistra the “CeeDee Lamb” of the stock market. Vistra is based in Dallas, just like Lamb, who plays for the Cowboys—whom I almost drafted. Vistra is also one of the few stocks giving Nvidia a run for its money.”
Vistra Corp. (NYSE:VST) is a compelling investment choice based on its strong Q2 2024 results and positive growth outlook. Vistra Corp. (NYSE:VST) reported an EPS of $1.43, surpassing the expected $1.38, and generated $3.85 billion in revenue, which exceeded forecasts by nearly 14%. This revenue growth shows the strength of Vistra Corp. (NYSE:VST)’s diverse operations across the U.S. power markets.
Despite economic challenges, Vistra Corp. (NYSE:VST) has maintained profitability with a solid return on equity of 21.05%, reflecting good capital management. Analysts are optimistic about Vistra Corp. (NYSE:VST)’s future, with “Buy” ratings from Morgan Stanley and UBS, and price targets above $100 per share. This confidence is supported by Vistra Corp. (NYSE:VST)’s strategic investments in renewable energy, positioning it well for long-term growth as the world moves towards cleaner energy.
Legacy Ridge Capital stated the following regarding Vistra Corp. (NYSE:VST) in its Q2 2024 investor letter:
“One of the sectors we know well which had been out of favor for several years has quickly come into favor: Independent Power Producers (IPPs). We’ve written consistently about NRG and Vistra Corp. (NYSE:VST) since the 2019 letter, have owned each, or both, since 2018, and invested a meaningful amount of our assets in VST specifically the past few years. Nate and I intend on spending more time in the year-end letter on our updated views on the IPPs and our learnings from the on-going investment, but we were a bit surprised how quickly the narrative around these companies changed. Our Blue Sky 2030 estimates of intrinsic value converged with the share price 6-years before we thought probable. In the 2019 letter, with respect to VST, we wrote:
“Over the next decade management should have close to $15 Billion to deploy to share repurchases. If you assume they have to pay an average price for the stock that’s higher than the current one, and they can only repurchase 60% of shares outstanding instead of the 100% the math implies, FCF per share in 2030 would be $14. That’s a $70 stock at today’s valuation, but a $140 stock at a more reasonable FCF yield of 10%.” And… “The IPPs are un-investable for most money managers, so there we are. When they become investable we’ll probably be long gone.”
We’re not exactly long gone, but sentiment has certainly surpassed investable. After 5+ years of VST trading between $17 – $26 a share—and $26 exactly a year ago—it hit a high of $107 in May on the heels of the Artificial Intelligence (AI) narrative and the implications for electricity demand. While we agree with the prevailing consensus view that more Data Centers will be built, Data Centers require base load energy, and that the US will probably be short base load energy, predicting the rate of any technological advancement is not our area of expertise, and we feel the margin of safety has dissipated. Therefore, what had been our largest position entering 2023 and 2024, and has been our greatest contributor to performance, is now one of the smaller positions in the fund.”
