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Shares of Vistra Get Hammered on Texas Storm Estimates

By Tyler Crowe - Updated Feb 26, 2021 at 1:45PM

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Management's early estimates suggest it is going to take a big hit from winter storm Uri.

What happened

Shares of independent power producer Vistra (VST 0.37%) are down 20.9% as of 12:15 p.m. EST today. The sharp drop in share price comes after management released its initial estimate for the costs it will incur from winter storm Uri earlier this month.

So what

In conjunction with the company's fourth-quarter and full-year 2020 earnings release, management gave some initial estimates for the financial impact from the recent Texas winter freeze. While management said that it has not completed the final tally, the current estimate is a financial hit between $900 million and $1.3 billion for the 2021 fiscal year.

Electric transmission lines

Image source: Getty Images.

The sharp increase in cost is because when several of the company's power-generating facilities were down from frozen natural gas lines, it was forced to pay for power from other producers to meet its contractual obligations to the Texas grid operator, ERCOT, and its customers. The sharp increase in electricity prices at the time meant Vistra had to pay a heavy price tag.

The news overshadowed some decent earnings numbers for the prior year. Vistra was able to grow cash flow from operations by 21% and beat management estimates for several other metrics. The utility company was also able to reduce its debt load by $1.5 billion over the prior year and brought its leverage -- management defines leverage as net debt to adjusted EBITDA -- to its long-term target of 2.5 times.

Now what

For a company that generated $3.3 billion in operating cash flow for an entire fiscal year, a financial hit of this size is going to set the company back a bit. As management mentioned in its press release, it has about $400 million in cash on hand and $2.3 billion available through short-term borrowing agreements. Also, as mentioned above, the company did just reduce its debt load significantly in 2020, so it appears the company has the finances to take the blow.

That said, this will likely hinder some of its other goals for the year, such as growing its renewable energy portfolio and making good on its share repurchase program. 2021 may not be a great year for Vistra, but since it has sufficient financial firepower at its disposal, there isn't a need to go rushing toward the exit.

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