This article is proudly sponsored by Lake Region State College!

About Vistra

Houston, Texas, you have my heart in so many ways.

Your winding eight-lane interstates, the evening skyline with the tips of buildings in the city center winking pulsating red and white at me, the anticipatory energy that used to fill my veins when I approached downtown and strolled towards the Toyota Center, meandering through the refined and ever so classy River Oaks neighborhood, taking in the local sights of beauty, and, of course, the ocean that rests an hour due south of the city, the true golden hour occurring as the horizon closes up shop for the day and the stars glisten upon the face of the blue gulf that used to lay ahead of me.

The sheer amount of memories and meaningful personal and professional connections I made during my short stint of living in the northwest region of Houston were simply unimaginable.

From meeting and interviewing the sole proprietor of a national skydiving venue and meeting and interning for multiple well known political figures to driving to my friend’s children’s high school basketball games across the city, playing frisbee just south of the city with strangers (yeah, you heard me) working odd jobs to keep some money coming in, interacting with local prominent business leaders and driving every single day to my next domestic adventure, every so often looking back longingly at the city and forward to the future.

This land is indeed the land of possibility.

Ok, enough of my deeply rooted Houston nostalgia, and more on perhaps one of the city’s largest sources of economic growth, the energy sector.

Obviously Texas overall is a major, tried-and-true energy producer in the context of the entire globe, and one of the largest energy corridors within this great state is evidently Houston, which just happens to be a home for major oil, gas and broader overall energy (think utilities) companies such as ConocoPhillips, BP, Hess, Citgo, Shell, Chevron, ExxonMobil, Reliant Energy, NRG and trust when I say plenty of others.

With this being the case, I sort of guess the joke is on me and this wasn’t exactly well calculated being that Vistra Corporation isn’t even actually headquartered in Houston, Texas, but rather it is based in Irving, Texas, which is just outside of Dallas, but given my love for H-Town, of course I felt and had to follow through on the urge to shout her out in this stock analysis article.

Now for the main portion of this evening, Vistra Corporation, which is one of the largest energy conglomerates in the United States, focusing its energy (get it?) on developing, manufacturing and supplying power to millions upon millions of households and businesses across the country.

Vistra is a power generating behemoth that apparently has an operational capacity to provide electricity for 20 million homes.

From natural gas, coal, nuclear plants, solar as well as battery storage facilities, Vistra is one important company, one of which many entities rely upon day in and day out, but as one can initially find, the company has some excellent energy businesses under its corporate umbrella, including those of TXU Energy, Dynegy, Homefield Energy, Ambit Energy and Energy Harbor, each of these subsidiaries strategically serving different geographies and regions across and within the United States, for instance, with TXU Energy being an absolute staple for Texans whereas Homefield Energy solely serves the Land of Lincoln, the state of Illinois. 

Now, I would like to initially assume that Vistra, at least on the basis of annual revenues, is largely insulated from recessionary and/or inflationary pressures, particularly in that the company offers some very, very important, mission critical products and services and serves an unequivocally crucial role for society overall, much of which we take for granted until a bad storm rolls through and the power goes out.

Then it’s as if Armageddon begins.

The beginning of the end, if you will.

Nevertheless, my general point is that from individual consumers and households to Vistra’s larger scale commercial clients, a lot has to go wrong before a company such as Vistra Corporation goes out of business, that is, at least on the basis of lack of demand, not to mention the simple fact of the matter that the aforementioned parties are going to prioritize parting ways with other expenses before even coming close to considering cutting off its own power and electricity.

Especially given the recent years down in Texas filled with uncertainty and instability behind the statewide power grid(s) and the summers that feel as though they are just becoming increasingly warmer (I mean guys it is seriously wicked hot down here in Austin, Texas, and whether or not the temperatures are actually rising, this is basically just my brief soapbox on just how filthily hot it can get down here), which makes me want to use my air conditioning more frequently and for longer periods of time, which would naturally bode well for what can really be thought of as an energy infrastructure company such as Vistra.

Those are some brief notes on Houston and Vistra, and now I will bring some of the company’s core, important numbers into the fold in hopes of inevitably scraping together an opinion as to whether or not this energy producer and distributor’s stock (NYSE: VST) is worth pondering an investment within.

Vistra’s stock financials

According to its current market capitalization, Vistra Corporation is a $29.94 billion energy company with a corresponding share price of $86.18 along with a price-to-earnings (P/E) ratio of 57.01 all while awarding its shareholders an annual dividend in the amount of $0.84.

In putting these preliminary facts and figures into something a little more digestible, Vistra, according to its price-to-earnings ratio, is an expensive stock, and not in a traditional, singular sense like when a stock is just pricy to the initial analyst, but in a deeper, more negative sense being that it is commonly held that a price-to-earnings ratio of 20 indicates that a company’s stock is trading at exactly fair value, or what it is worth paying for today, and, well, Vistra’s prevailing P/E ratio is trading well above this benchmark, therefore, on this primary basis, an ownership stake in Vistra Corporation’s shares seems like a costly endeavor.

At any rate, research within the confines of investing is a holistic game that requires gathering and analyzing facts, and boy do we have more facts to analyze.

Vistra, on the sole basis of its present valuation relative to its share price, still is not completely down and out yet.

With respect to the company’s balance sheet, Vistra’s corporate team is responsible for just about $33 billion in terms of total assets along with $27.6 billion in terms of total liabilities, which objectively does cut it a little close, but given the inherent equipment and machinery-heaviness of Vistra’s line of business as well as the overall category within which it operates, this balance sheet breakdown doesn’t scare me into submission, and I frankly have my suspicions that given how cash flow generative and regulated the energy sector tends to be, Vistra can further manage and tame its liabilities in the years and decades to come.

Moving over to the company’s income statement, Vistra’s recent annual revenue figures have actually shown some upwards promise, specifically, with the conglomerate’s annual revenues since and during 2019 and 2023 generally growing each and every year, albeit not at an all too rapid of a rate, but still, growth is growth, especially when it comes to the historically boring and slow-moving utilities sector.

More specifically, the company’s revenues grew from a relative low of $11.4 billion (2020) to a recent high of $14.7 billion, as measured and displayed for the year of 2023.

I appreciate the revenue/sales growth that this huge utility has amassed in recent years, however, in my opinion, it is still not growing at a nearly fast enough rate to reasonably justify paying this much of an existing premium for Vistra’s stock (NYSE: VST).

Onto the company’s cash flow statement, Vistra’s total cash from operations throughout this exact same time period have actually endured their fair share of fluctuation within this relatively short period of time, ranging from a low of -$206 million, which was reported in 2021 and a much more favorable high of just north of $5.4 billion, as relayed in its most recently reported year of 2023.

It was somewhat obvious that 2021 wasn’t going to be the hottest year for basically any major utilities and/or energy company given that these companies (and likely many of their subsidiaries for that matter) were forced to shut down or temporarily close certain plants and facilities across the country while simultaneously reinvesting heavily into new energy solutions needed to keep their wide range of customers with power.

I will not so much as just blindly and haphazardly offer this company a pass on this front, but I will incorporate the fact that the onset and the duration of COVID were always going to be rough and rather uncertain for companies such as Vistra, so I reasonably sympathize.

Vistra’s stock fundamentals

When it comes to the company’s net profit margin, Vistra’s is listed on Charles Schwab’s brokerage platform as being a bit below the competition’s respective margins, tucked in away at a rather modest 6.06%, in comparison to some of the other majors out there such as Exelon, PG&E, Xcel Energy and American Electric Power Company, which all respectively maintain net profit margins of 10.44%, 10.05%, 13.36% and 14.26%, all evidently standing in higher and more intriguing form than Vistra.

Once again, while I am most definitely not in the business of cutting companies slack or deviating too far from the facts, I will concede that Vistra covers a lot of territory across the United States, whereas some of the previously mentioned competitors tend to cover less ground, for example, with PG&E focusing primarily on being an energy supplier for inhabitants of the state of California, and essentially nowhere else, and specialization tends to lead to beefier, more impressive net profit margins.

All of that being said, given how much ground Vistra covers, I understand why its net profit margin is more muted, even if it still doesn’t exactly make me thrilled.

Should you buy Vistra stock?

In the interest of keeping it real, as the kids say, if this company’s stock (NYSE: VST) was trading at a much leaner, attractive, value conducive valuation, you can basically bet your bottom dollar that I would’ve offered it a “buy” rating, however, being that I am also not in the business of buying high and selling low, or at least markedly increasing my chances of doing so given this firm’s present valuation, I deem it most appropriate to give the company’s stock a “sell” rating for the time being.

While I do wholeheartedly believe there are some concrete and defined tailwinds that will ultimately benefit this company moving forward, this rating decision is also supported by the company’s rather lackluster net profit margin, especially as it stands up (or doesn’t, really) against that of its primary competitors.

I love Houston, but Vistra at the moment, not so much.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.

© 2024 MacroHint.com. All rights reserved.