Why did US largest electricity Vistra, a turned around comapny, share return higher than Nvidia?

Vistra

Vistra is a typical beneficial company in this AI frenzy.

AI causes electricity consumption to rise

Disrupt power generation planning

In the United States, there has even been a surge in electricity consumption due to artificial intelligence. Power generators in many data centers or technology centers in the United States have postponed the operation of coal-fired power plants that were originally scheduled to be phased out to cope with disrupted plans.

GPU power consumption is 2~2.5 times of CPU

The global demand for generated artificial intelligence is booming, data centers are springing up like mushrooms after a rain, and artificial intelligence computing requires huge power. Driven by the rigid demand for data centers, the subsequent upward trend in stock prices is worth looking forward to. It is also recommended that investors pay attention to utility stocks that indirectly benefit from the trend of artificial intelligence.

A Bank of America report points out that the power consumption of GPUs is 2 to 2.5 times that of CPUs. As data centers are gradually put into construction, power consumption is expected to increase significantly and will be more than 50% higher than the power consumption of existing data centers in the United States. , it is estimated that the compound annual growth rate of electricity demand in the artificial intelligence industry will reach 25% to 33% in the next few years.

U.S. and Japan have the same trend

Goldman Sachs recently released a report predicting that from 2023 to 2030, the compound annual growth rate of U.S. data center electricity demand will reach 15%, and the proportion of data center electricity consumption in U.S. electricity demand will also increase from the current level. 3%, expanding to 8% in 2030.

An analysis report released by Wells Fargo shows that after a 10-year power growth plateau, U.S. power demand is expected to increase by 20% in 2030. According to Wells Fargo, AI data centers alone are expected to increase electricity demand in the United States by approximately 323 terawatt hours (1 terawatt hour = 1 billion kilowatt hours) by 2030. For comparison, New York City currently uses 48 terawatt hours of electricity per year.

The Japanese government recently released a forecast report. In response to the booming application of artificial intelligence, fabs and data center infrastructure continue to be added across Japan. Future national electricity demand is estimated to increase by as much as 50% in 2050.

Introduction

company’s history

Vistra Corp (ticker: VST) was formerly known as Vistra Energy Corp and changed its name to its current name in July 2020. The company was founded in 1882 and is headquartered in Irving, Texas. It is a well-known energy company in Texas, USA.

America’s largest power generator

The company is mainly engaged in power supply and production. It is currently the supplier of retail electricity to the largest electricity producer in the United States. The company has approximately 39GW of installed capacity, powered by a diverse portfolio including natural gas, nuclear, solar and battery storage facilities. The company owns the Moss Landing power plant in California, which in 2021 claimed to have the world’s largest battery storage system (400 MW/1,600 MWh). As of 2020, the company was ranked as the top CO2 emitter in the United States.

Been bankrupt

In 2016, Texas Competitive Electric Holdings, the parent company of TXU Energy and Luminant, emerged from Chapter 11 as part of the bankruptcy protection of Energy Future Holdings Corporation. TCEH subsequently changed its name to Vistra Energy.

Oerating performance

Recent performance

Vistra Energy’s GAAP net income will be $1.5 billion in 2023, compared with a net loss of $1.2 billion in 2022; adjusted EBITDA from continuing operations will be $4.1 billion in 2022. One figure was $3.1 billion.

After Vistra announced its first-quarter 2024 financial results, the stock price of Vistra, one of the largest power producers and retail energy suppliers in the United States, rose again.

Operational Outlook

Vistra Energy expects good full-year results in 2024, with adjusted EBITDA from continuing operations expected to be $3.7 billion to $4.1 billion.

The company’s adjusted EBITDA from continuing operations could exceed $6 billion by 2026, about 24% higher than previous market expectations. This means that the company’s compound annual growth rate for this indicator will reach 13% during 2023-2026, which is significantly higher than the 3.8% rate during 2020-2023.

In addition, according to calculations by Wall Street institutions, Vistra Energy’s average annual EPS growth rate during 2023-2026 is 33%.

Excellent capital allocation

Unregulated

In 2023, Vistra Energy’s natural gas, nuclear and coal-fired power generation will account for more than 20% of Texas’ total electricity consumption. Unlike regulated utilities, where profits are determined by capital investments, Vistra Energy operates in an unregulated market and generates and sells electricity at market prices.

Reduce carbon emissions

Vistra Energy’s capital allocation is excellent. The company closed unprofitable coal-fired power plants to improve its carbon footprint and ease oversupply. The company closed unprofitable coal-fired power plants to improve its carbon footprint and ease oversupply.

Acquisitions

On March 1, 2024, Vistra Energy announced the completion of the acquisition of Energy Harbor nuclear power assets. This is a smart capital allocation move as the merits of nuclear power as the only carbon-free energy source for generating electricity 24/7 are finally being recognized, and the U.S.’s demand for existing and new nuclear generation capacity is increasing due to demand for zero-carbon emissions, baseload power. Demand continues to increase. The deal provides a 4,000-megawatt increase to Vistra Energy’s existing 2,400-megawatt nuclear capacity and means 15.6% of the company’s generation will come from nuclear power. The deal also adds 1 million retail customers to Vistra Energy’s existing 4 million customers.

Vistra Energy’s main operations are concentrated in areas with strong economic growth, and many of the company’s natural gas power plants are located near high-yield, low-cost gas fields. Companies are also pushing to extend the lives of their existing nuclear facilities. The additional nuclear power generation capacity provides good base load capacity, especially for other clean energy sources such as renewable energy sources that have intermittent characteristics.

Repurchase

The company’s management patiently invested in maintaining existing projects and used excess cash flow for stock repurchases. From 2018 to 2023, its share count decreased by 33%.

Vistra Energy repurchased 98% of the interest in payments received under the Taxes Receivable Agreement (TRA). This simplifies the company’s capital structure and increases free cash flow in the coming years. In February 2024, the company’s board of directors approved a $1.5 billion stock repurchase plan, with repurchases expected to total $2.25 billion in 2024 and 2025.

Capital market performance

Valuation

The stock currently trades at a 2026 price-to-earnings ratio of 17 times, which is still relatively modest. Vistra Energy’s book value is only $8.06 per share, which is still well below the market value, indicating that investors are optimistic about the stock.

Stock price performance

The stock price of Vistra (ticker: VST) has risen more than Nvidia in one year. The price-to-earnings ratio in 2026 is still lower than the average, which means that the stock price should still have room to rise.

As of May 20, 2024, Vistra has risen by 273.36% in the past year, and Vertiv (ticker: VRT, please see my post of “How Vertiv, share price return 2.5 times of Nvidia, make money?“) has risen by 501% during the same period, both beating Nvidia’s 204%.

Risks

Vistra Energy’s interest costs on existing debt are moderate, which is a positive. But it is worth noting that as of December 31, 2023, Vistra Energy’s gearing ratio was as high as 84%. Commodities and other derivatives liabilities totaled $6.9 billion, asset retirement obligations totaled $2.5 billion, and long-term debt totaled $14.4 billion. In addition, the company will face higher costs on rolled over debt. The company is particularly vulnerable to continued high interest rates due to its high debt ratio. Therefore, this is a risk factor that investors need to consider.

Vistra
credit: wiki

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