The stock market has been on an incredible run this year, with the Nasdaq Composite index up 51% from its April lows. Lately, the market has seen some cooling off, with the Nasdaq down 4% from its high, while many individual stocks, including some of the hottest names around artificial intelligence (AI), are down even more.
Even more stable sectors, such as utilities and energy, have cooled off as investors reevaluate the scale of the AI data center buildout. One company caught up in this is Vistra Energy (VST +2.71%). After peaking at nearly $220 per share in September, the stock has declined 18%.
Vistra Energy is one company positioned to provide energy for the growing data center footprints of hyperscalers. With the stock trading below $190 per share, is it now time to buy the stock? Let's delve into the business and explore the investment opportunity it presents.
NYSE: VST
Key Data Points
Vistra is a top energy provider in the United States
Vistra provides electricity to over 5 million residential, commercial, and industrial customers across the United States. Its massive fleet of assets makes Vistra one of the largest competitive power generators in the U.S., holding a position in all of the significant competitive wholesale power markets in the country.
Its competitive advantage lies in its role as a merchant power company, where it sells electricity directly into wholesale competitive markets across 18 states and Washington, D.C., on a short-term basis rather than through power purchase agreements.
Because of this business model, Vistra doesn't rely on any individual power plant, geographic market, or customer segment. The company instead combines its retail business with its generation fleet and wholesale commodity risk management capabilities by hedging with derivatives. In other words, its business model helps reduce the effects of commodity price movements and contributes to cash-flow stability.
Image source: Getty Images.
This business model positions Vistra to benefit from rising wholesale power prices, particularly in regions like the Northeast and Midwest U.S., where supply constraints and surging demand are reshaping dynamics across the energy complex.
Vistra's growing energy footprint
Vistra recently acquired seven modern natural gas generation facilities from Lotus Infrastructure Partners, adding another 2,600 MW of capacity to its portfolio. This gives it additional energy assets across the Midwest, Northeast, and California markets.
It is also expanding its capacity with two advanced natural gas power units, totaling 860 MW, at its Permian Basin Power Plant. This buildout will address some of West Texas' growing power needs, especially for the expanding oil and natural gas industries, which are increasingly electrifying operations. The site's current capacity is 325 MW, which will grow to 1,185 MW by 2028.
Its business model is sensitive to price swings
Vistra is vulnerable to market fluctuations because it primarily operates as a merchant power provider, which significantly impacts its revenues and operating cash flows due to the volatility of prices for wholesale electricity, natural gas, and other fuels. Wholesale electricity prices are highly volatile due to supply and demand imbalances, especially in day-ahead and spot markets.
That said, markets remain tight with an upward bias in wholesale power prices in the PJM region. Additionally, some of Vistra's key markets are seeing a sluggish pace of new plant construction, regulatory bottlenecks, and the retirement of old coal and nuclear facilities. Supply chain constraints and labor shortages have reduced the availability of equipment and increased lead times for materials needed for new construction and maintenance.
As a result, supply demand conditions remain tight, allowing merchant generators like Vistra to command premium pricing, especially during peak load periods.
Is Vistra a buy?
TD Cowen analyst Shelby Tucker said that the broader environment presents a "once in a generation opportunity" for electric utility companies. The industry is experiencing accelerated demand for energy, driven by the growth of data centers and the need to upgrade utility assets.
Vistra trades at a premium for a utility provider, which reflects investors' optimistic growth prospects for the company over the next couple of years. The stock peaked at around 28 times this year's projected earnings, and is now down to 22.8 times. It's also priced at 18.2 times its projected earnings per share for 2026.
Vistra's growth opportunities lie in the expansion of artificial intelligence and the energy needed to power hyperscalers' expanding data center footprints. The company is well positioned to benefit from the tailwind that these secular trends will bring, which is why I believe the recent dip is a good opportunity for investors to buy Vistra today.
