Vistra Corp.: Still Bullish On Value, FCF, Improving Balance Sheet

Summary

• We continue to believe Vistra Corp. offers outperformance potential with an estimated ~50% total return to investors over the next 18 months.
• Vistra’s free cash flow is expected to exceed $2B annually over the next several years, or ~20%/year of VST’s market cap.
• Management has pledged to return $7.5B to shareholders over the next 5 years or ~80% of its current market cap.
• We expect Vistra to reach investment grade status by mid-2024, which would open VST to a larger pool of investors.
• Main risk: Re-rate of the multiple to the upside may not occur or take longer than expected because of Vistra’s status as a merchant generator.

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Background

Our summary bullet points are similar to the first note we published on Vistra Corp. (NYSE:VST) approximately 18 months ago. Winter storm Uri effectively delayed realization of our original thesis. While VST shares

Analyst’s Disclosure:I/we have a beneficial long position in the shares of VST either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Our firm is long VST across various strategies and/or separately managed accounts. This presentation is limited to the dissemination of general information pertaining to general economic market conditions. The information contained herein should not be construed as personalized investment advice and should not be considered as a solicitation to buy or sell any security or engage in a particular investment strategy. Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this presentation will come to pass. Individual client needs, asset allocations and investment strategies differ based on a variety of factors. Principal Street Partners, LLC (“Principal Street”) is an SEC registered investment advisor with its principal place of business in the State of Tennessee. Principal Street and its representatives are complying with the current registration and notice filing requirements imposed upon registered investment advisors by those states in which Principal Street maintains clients. Principal Street may only transact business in those states in which it is noticed filed or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by Principal Street with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.