Vistra is down 20.59% over the past year. Why I still hold it in my portfolio

Vistra is currently the newest stock in my portfolio. Since I've held it, I'm up just over 6%. But what is my investment thesis and why do I plan to add to it in the near future.

Vistra $VST is the second-largest nuclear power plant operator in the US, on top of that a huge fleet of gas-fired plants, and over the last two years it has been one of the most talked-about stocks related to the AI and data center theme; from the start of 2024 to last autumn's peak, the stock gained over 300%. Now it's 30% below that peak.

Analysis: what really happened in recent months?

Second-quarter results were better than the market reaction suggests. On August 7, Vistra reported revenue of $4.02 billion, down 5.5% year over year, and net income of $305 million versus $327 million a year earlier. At first glance, that's a relatively weak number.

But one number is key: the net income included an unrealized loss of $472 million from commodity hedges on electricity deliveries that won't be settled for several years. It's purely an accounting revaluation, and the metric the company itself chose as its main business measure, adjusted EBITDA, actually rose by more than 30% to $1.77 billion, beating analysts' estimate of $1.635 billion.

But the market found a second reason for concern, and that one is fairly legitimate. The CFO said openly on the call that future electricity price curves in ERCOT (the Texas transmission grid) are lower than the company expected. On top of that, Governor Greg Abbott ordered an audit of the so-called "Batch Zero" – the first wave of data center applications to connect to the Texas grid – and Texas suspended its review because of it. That's a real risk: if data center demand for connections slows or gets tangled up in regulation, it would weaken one of the main pillars of the whole AI-power story that Vistra has recently been riding on.

More interesting than the quarterly numbers, though, are the contracts Vistra has signed for the coming years. The company has a 20-year contract with Amazon $AMZN to supply up to 1,200 MW from the Comanche Peak nuclear plant and contracts with Meta $META for more than 2,600 MW from nuclear sources in the PJM grid. On top of that, there's the pending acquisition of the Cogentrix gas fleet with 5,500 MW of capacity and a new joint venture, Helix Digital Infrastructure. Management said that Cogentrix and the Meta contracts alone could add roughly $700 million to the midpoint of the 2027 EBITDA estimate, and those numbers are not yet included in the outlook.

The company's own management is buying the stock. CEO James Burke bought 2,000 shares on August 24 at $135, that's $270,000 out of his own pocket, after the stock was already 29% down. An insider with the best access to internal numbers is betting his own money that the drop is overdone. The company also raised its quarterly dividend to $0.226 and has about $1.2 billion available for further buybacks through the end of 2027.

But why do I plan to buy even at the current price?

I distinguish two different categories of problems with Vistra, and only one of them would be a reason for me to exit the position. The first category is classic noise – accounting hedge revaluations that will even out over time, or temporarily weaker spot electricity prices. That's exactly the type of volatility a merchant power company like Vistra will always have, because it sells a commodity whose price it doesn't control.

The second category would be a breakdown in actual demand: if hyperscalers started cutting orders, if the Amazon and Meta contracts were canceled, or if regulation in Texas permanently halted data center demand. I would take that seriously, but so far the opposite is happening: contracts keep getting signed. The Batch Zero pause is a real risk I'm watching, but it's more of an administrative delay than a cancellation of demand.

What also keeps me calm is who is buying in this drop – the company's CEO with his own money. And the range of analyst estimates, even after subtracting the most optimistic numbers, still points to a price substantially higher than where the stock is now. I'm not naive – analyst price targets often miss.

Which energy stock do you hold? Are you planning to focus on the energy sector in the current environment?