What happened

Shares of Vistra Corp. (VST -0.31%) jumped on Wednesday, rallying 10.4% as of 2:50 p.m. EDT. Utility stocks rarely make such big moves as they're typically slow-moving, steady businesses, so there's clearly something big brewing in Vistra.

So what

Two developments lit a fire under Vistra shares.

First, the company announced a share-repurchase program worth $2 billion on Oct. 12 and expects to start buying back shares in November through 2022.

Two people sitting together and happily counting money.

Image source: Getty Images.

Importantly, Vistra says this big repurchase program is a result of the company's strategic review of its capital allocation policy in a bid to boost shareholder returns. As part of its review, Vistra aims to strengthen its balance sheet, expand its zero-carbon portfolio, and return "significant capital to shareholders" in the form of share repurchases and dividend growth.

The Texas-based utility provides electricity and natural gas to nearly 4.3 million customers and is expanding its portfolio of renewable-energy assets. Vistra's net debt increased by nearly $2 billion in the first quarter of 2021 because of Winter Storm Uri, and that sent the stock crashing.

Management believes the stock is undervalued and has therefore initiated a share-repurchase program. In fact, it says it could potentially repurchase shares worth $5 billion by the end of 2025, which is more than half the stock's current market capitalization!

VST Chart

VST data by YCharts

The second reason that lifted Vistra shares higher is an analyst upgrade: BMO Capital's analyst James Thalacker raised his price target on Vistra stock to $27 per share from $25 per share, believing that the company's $2 billion share-repurchase program is a "significant positive" for the stock as it reflects management's confidence in the company and commitment to shareholder returns.

Now what

Vistra believes repurchasing shares right now is the best use of cash, although it also expects to end a "meaningful portion" of debt by the end of 2022 and grow its dividend. Earlier this year, Vistra increased its dividend by 11%, way above management's long-term, dividend-growth target of 6% to 8%. With the stock currently yielding 3.4%, today's announcements from the company have lifted investor hopes even higher, especially after the stock's recent drop.