Hello! It’s Oni. I’m here to review Vistra Energy (VST). I believe I’ve found a potential earnings winner. I’ll tell you the who, what, why and when below:
What The Hell is VST?
Vistra is an energy and power generation company based in Irving, TX. They are a major player in the US, providing power in 20 states through various subsidaries such as Dynegy, Luminant, TXU. Basically, they have their hands on the electrical pulse in many places. They’re a Fortune 275 company, and they are the largest competitive power generator in the US today.
State of the Company
VST ate a lot of shit last year with Winter Storm Uri. Our Texas Valhallans may recall a period of time last February where you were living in the stone age version of Antarctica. Yeah, that was Uri. VST and their subs took a lot of financial damage from the event, so much so that it caused their EPS to drop from around 1.35 to -4.14 over the period from February to September 2021. Material costs doubled compared to 2020 and operating income went into the deep red. The company was hurting bad.
To their credit, VST was transparent about this in their most recent 10-Q filed on 11/5/21. However, they wisely presented the information for 2021 in two separate periods of time.
One length of the time is the aforementioned “9 month period” that spans January - September 2021. This is where we see those heavy material cost bags and operating costs dragging them through sewage. The other shows a more recent window; a three month period from July - September 2021. It is a very stark contrast between the two. The nine month looks extremely bleak when taken in a broad scope, especially that -4.14 EPS compared to 1.35-1.36 the year prior.
The three-month period shows us an EPS in recovery. One cent doesn’t seem like a lot, but it looks a fuckload better than -4.14. Not only that, but you can see the difference in the three month cycle. There’s a lot more green on the books, revenue looks normal, and they’re not paying for double the cost in FUCKING MATERIALS.
Bull or Bear
The company looks to be in a state of recovery. They maintained a consistent revenue stream through 2021, and cited that COVID does not disrupt their business from a material aspect whatsoever. Winter Storm Uri bullied them, but they stand to receive $500m in financing from the Public Utility Commission of Texas and Energy Reliability Council of Texas as a result of a settlement agreement.
The guidance has been stellar. They laid out a share dividend plan, detailed expansion into clean energy, and explained their approach to handling debt. Oh, and updated their EBITDA.
I’m bullish on their earnings, and the company doesn’t look to be a bad long term investment either. But we’re talking about earnings.
TA
From a technical standpoint, the average volume isn’t anything extreme on the average day to day. 4.16m is nothing trivial, but this thing isn’t in the sphere of extreme volatility. The 2-4 weeks period around earnings see a spike in volume to around 6-8m per day, with the most coming on the day of earnings itself as one might expect. The ticker is currently in an uptrend on the daily, with an RSI of 58. It is trading above its 200 MA.
Prior to the last earnings, the stock entered into a downtrend during the months of September and October before it gapped up significantly leading into the 11/5 ER. It’s possible people wanted to collect on dividend before dumping it, but I can’t find any news other than what was already available in a very negative August for the company to justify it downtrending then exploding up from 17 - 19.8. I am not expecting it to downtrend into earnings this time. This Vist looking kinda strong.
In terms of options, there is some interesting activity on the Feb 18 strikes. 23c have 16k OI while 24 have around 19k. This suggests positive sentiment to me. Apr 14 21c have 6k as well.
How Do We Play It?
Unfortunately, no official earnings date has been announced. This is a wait and see for now, but EW suggests with apparent high certainty that 2/4/22 will be their earnings call. EW has even given a 6:30am call time in pre-market. Other outlets are being more conservative and suggesting a 2/24 - 2/25 ER. I will be updating this one as new information comes in, but it is fairly certain that earnings will be sometime before the end of Feb. Apr ITM strikes may be the safest bet right now, and that’s what I’ll be eyeing up as we get closer to Feb. Of course, if an official earnings is given and it predates the Feb OpEx, that OI is pretty juicy and the options will be cheaper. Play it your way if you decide to play it.
Bear Scenarios?
Obviously, any news that affects the energy sector could adversely (or positively) affect VST. Freak Winter storms or unforeseen natural disasters could happen. We’re still in that time of year.
Ideally, the ER is before the Feb OpEx, because the entry point and price tag would match up while it’s still trading at a relatively low pay to play. ER post Feb OpEx means Apr strikes, which, admittedly, are less appealing.
I suppose their ER could be horrendous, but that doesn’t seem likely. The company’s guidance has been phenomenal, and it would really surprise me if they haven’t continued to post excellent figures as this has generally been a mild winter in most regions. They also stand to receive that 500m in financing to bolster their coffers.
Closing
I hope you enjoyed reading this essay as much as I enjoyed writing it. Critiques, contributions, questions always welcome. Thanks for your time.