Vistra Downgraded After Record High. Why a Hyperscaler Deal Could Make or Break the Stock.

Vistra CEO Jim Burke said the company feels “very good about where things stand” in regard to a hyperscaler deal for its Comanche Peak nuclear plant. (David Paul Morris/Bloomberg)

Key Points

About This Summary

• Jefferies downgraded Vistra stock to Hold from Buy, cutting its price target to $230 from $241, citing delayed data center deal expectations.
• Vistra’s stock declined 5.1% to $206.82 after the downgrade, though it had gained 50% this year prior to the announcement.
• The analysts believe a deal for the Comanche Peak plant will be prolonged and require additional gas generation, despite strong core business.

Investors remain hopeful that Vistra will land a deal with a large cloud computing provider for its Comanche Peak nuclear plant, but the odds of this occurring in the near term are dwindling.

That’s according to Jefferies analysts, who downgraded the stock to Hold from Buy and cut their price target to $230 from $241. The new price target represents 11% upside to Tuesday’s price, as shares slumped 5.1% to $206.82.

Peer NRG Energy stock declined 1.5%, while the benchmark S&P 500 was down 0.6%.

Vistra has been trying to hash out agreements with hyperscaler customers, or the operators of massive, energy-sucking data centers, for its Comanche Peak plant. The plant, located southwest of Dallas, is licensed to operate through 2053.

But details are murky. Vistra CEO Jim Burke declined to name potential clients on the company’s second-quarter earnings call, though he said he felt “very good about where things stand in getting a deal done.”

Jefferies isn’t as hopeful. “With the announcement delayed beyond our latest expectations of early September, it is less apparent that VST will secure the deal imminently and/or without potential contingencies,” the firm wrote.

The Jefferies team noted that efforts have been ongoing for months, starting before the Texas state legislature passed Senate Bill 6 in June. The law, which requires large energy users like data centers to pay for grid upgrades, went into effect earlier this month.

“We now believe that although the deal ultimately would be reached it would be on a more prolonged timeline and with additional requirements, such as a material new gas generation additions to support it,” Jefferies continued.

The analysts clarified that the downgrade wasn’t solely contingent on the delayed deal, “but rather because the stock has materially rallied which prices-in a robust view of data center contracting.” In their eyes, this creates a better balance between risk and reward.

With investors increasingly expecting both reactors at Comanche to be contracted at $90 to $100 a megawatt-hour, Jefferies doesn’t see much room for outperformance ahead.

The stock has gained 50% this year and is trading just shy of record levels. Vistra notched a record closing high of $217.92 and all-time intraday high of $219.82 on Monday.

Beyond the Comanche tie-up, Vistra’s core business remains strong, Jefferies said. The firm expects earnings before interest, taxes, depreciation, and amortization to rise steadily from 2027 through 2029 on higher power prices in Texas.

“We think the shares are fairly valued at this point as the market is now pricing in material upside from data center deals at its nuclear plants and a robust gas plants deal contracting,” analysts wrote.

Of 18 analysts tracked by FactSet, 15 rate Vistra at Buy or the equivalent. Two, including Jefferies rate the stock at Hold, while one analyst, Travis Miller at Morningstar Equity Research, rates it at Sell.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com