Morningstar | Retail Growth Improves Vistra's Cash Flow; Board Approves Dividend
We are reaffirming our $19 per share fair value estimate for Vistra Energy after the company reported $2.8 billion of adjusted EBITDA for full-year 2018 and the board of directors initiated a $0.125 per share quarterly dividend. We are reaffirming our no-moat and stable moat trend ratings.The new dividend represents a 2% yield as of Feb. 28. Although the dividend requires only a small share of Vistra's cash flow, we think it suggests the board believes Vistra has established a consistent stream of core cash flows. We think income-oriented investors should remain cautious of Vistra's commodity sensitivity.
We believe Vistra has reduced its cash flow volatility by pairing its retail and wholesale generation businesses. The $2.27 billion Dynegy acquisition in April 2018 tripled its generation fleet, most of it outside Texas. Although much smaller, we think its $486 million Crius acquisition including debt announced in February could be more beneficial for shareholders.
We expect to raise our fair value estimate slightly once we incorporate Crius in our forecasts. We think the acquisition is positive since it adds retail customers in the Northeast, where it has substantial generation but little retail business. Growing its retail business in the region should help reduce its sensitivity to volatile power markets. We wouldn't be surprised if Vistra looks for more retail acquisitions.
Management reaffirmed its $3.22 billion-$3.42 billion adjusted EBITDA guidance, in line with our estimate after including Crius earnings. We forecast 2019 will be a peak earnings year after power prices rallied during 2018. This allowed Vistra to hedge virtually all of its wholesale generation at attractive margins for 2019 and part of 2020. However, we think falling power and capacity prices will weigh on earnings beyond 2020.
Vistra Energy operates an integrated retail and generation business in markets throughout the U.S. Through its subsidiaries, the company is engaged in electricity market activities, including electricity generation, wholesale energy sales and purchases, commodity risk management and retail sales of electricity. The company has six segments: Retail, ERCOT, PJM, NY/NE (comprising NYISO and ISO-NE), MISO and Asset Closure. The Retail segment is engaged in retail sales of electricity and related services. The ERCOT, PJM, NY/NE and MISO segments are engaged in electricity generation, among others. The Asset Closure segment is engaged in the decommissioning and reclamation of retired plants and mines.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.