Vistra’s Steady Results and Outlook Likely Mean More Cash for Shareholders

We are reaffirming our $23 fair value estimate for Vistra Corp. VST after the company reported $3.1 billion adjusted EBITDA in 2022, in line with our forecast and management’s guidance range. We are reaffirming our no-moat and negative moat trend ratings.

Management also reaffirmed 2023 EBITDA guidance of $3.4 billion-$4.0 billion. Our estimate is at the top end of this range. With Vistra reporting its generation fleet is 90% hedged going into 2023, we expect it would take an extreme weather event or operational miscue to knock results outside of this range.

We also continue to expect Vistra on average will deliver $3.6 billion per year of adjusted EBITDA in 2024 and 2025. Vistra reported 73% of its expected generation on average through 2025, up slightly from 70% at the end of the third quarter. This hedge position reduces Vistra’s exposure to large energy price movements. We think its primary risk during the next three years is a large unexpected change in retail energy usage.

With a relatively steady outlook, Vistra continues with an aggressive strategy to return cash to shareholders. Vistra bought back more than $2 billion of stock in 2022 and plans $1 billion in 2023, in line with our forecast. With the stock trading near our fair value estimate, buybacks don’t have a material impact on our fair value estimate.

If Vistra performs as we expect, we think the company could average more than $1 billion of share buybacks plus a $300 million dividend annually through 2026 given its relatively low growth capital investment needs. Management seems to prefer share repurchases and dividend growth much more than investing heavily in its only organic growth area, the Vistra Zero renewable energy business. We think this is a positive for shareholders right now given Vistra’s stock price near 52-week lows and shrinking returns for renewable energy.