The Texas heatwave has sent temperatures skyrocketing. Triple digits were reached across the state, reaching 125°F in Corpus Christi and 118°F in Rio Grande, as recorded by the Heat Index, which provides a combination of temperature and humidity.
In the meantime, the need for air conditioning has led to a sharp increase in the demand for electricity – and thus also to an increase in prices. Electricity prices doubled, reaching as high as $5,000 per megawatt-hour earlier this week. The unusually high level of humidity makes things even more difficult, especially near the Gulf Coast. Meteorologists expect temperatures to continue to rise and continue into the week of July 4th, with no prospect of relief anytime soon.
But dangerous situations, as this heat wave certainly is, can also bring opportunities — and investors can capitalize on the Texas crisis. High utility prices are an obvious boon as utilities involved in the Texas power grid are likely to see a cash inflow as a result, but renewable energy companies will also benefit over the long term as the state of Texas faces the need to expand its power generation capacity .
So let's take a look at some energy companies that are making profits in their Texas operations. Here are the details pulled from the TipRanks data files, along with comments from the Street analysts.
Vista Energy (VST)
We'll start with Vistra Energy, a utility based in Irving, Texas, and one of the largest utility-scale power generation companies in the United States. Vistra employs more than 5,000 people and has a total generation capacity of over 37,000 megawatts – and about 3,400 megawatts of that comes from zero-carbon renewable sources. In addition, Vistra owns a 750MW/3,000MWh battery capacity energy storage system in Moss Landing, California, making it the largest facility of its kind in the world.
Vistra's proven generating capacity allows it to market electricity in 20 states plus DC. The company serves more than 4.3 million residential, commercial and industrial customers. Vistra's generation portfolio includes a mix of natural gas, nuclear and solar production and is also a major buyer of wind power.
While Vistra operates across the United States, its Texas operations account for the largest single component of its Adjusted EBITDA at $383 million out of $541 million consolidated in the first quarter of 2023, although that figure falls short of target $575 million for the quarter. On the other hand, the company had total revenue of $4.43 billion, up 41.5% year over year and beating guidance by about $2.5 billion.
Vistra also pays a dividend and announced its final payment of $0.204 per common share for the second quarter of 2023. This represents a 3.3% increase over the previous payout and provides a return of ~3.20%.
While Adjusted EBITDA came in below expectations, BMO analyst James Thalacker thinks this stock is attractively priced and sees the company as a competitive player in the industry. Thalacker writes, “We are positive on Vistras 1Q23 and remain buyers of the name with an EV/EBITDA multiple below 5x and an FCFY above 30%.” While results for Q1 23 were only weakly in line with consensus, the Management maintains a positive outlook forward, which indicates upside potential in the mid-range of the Company's 2024/2025 2024/2025 independent Adjusted EBITDA opportunity of $3,500 million to $3,700 million. The upside is driven by opportunistic hedging since May 2022 and continued resilient forward power curves, allowing EBITDA to converge in a range of approximately $3,700-$3,800 million.”
The analyst maintains an Outperform (buy) rating on these stocks, and his price target of $36 shows his confidence in the stock's upside potential of 43% within a year. (To see Thalacker's track record, Click here.)
While Vistra only has four recent analyst ratings, they are all positive, giving the stock an unanimous consensus rating of “Strong Buy.” The shares are selling for $25.1o and have an average one-year price target of $33.75, which translates to a 34% gain over the next 12 months. (See Vistra's stock forecast)
NextEra Energy (NEE)
The second stock on our list is NextEra Energy, a major player in the U.S. clean and renewable power generation market. NextEra is based in Florida and its principal subsidiary is Florida Power & Light (FPL), through which the company has more than 5.8 million active customers. In total, the company supplies more than 12 million people in its home country with electricity.
NextEra also has operations in Texas, where it maintains an extensive network of wind, solar and natural gas power generation facilities, as well as a power transmission line and substations in central Texas, connecting several of the wind farms to the Dallas-Fort Worth. Fort Worth area. The company is also expanding its presence in Texas; Last year, the company struck a deal with a division of British petrochemical company Ineos to build a 310MW solar plant in the state. The new facility, which is scheduled to start up in 2025, will use all of its energy output for Ineos O&P USA's manufacturing, fractionation and storage operations.
Taking a closer look at the company, we find that NextEra posted revenue of $6.72 billion in Q1 23, which is $1.42 billion ahead of estimates. The company's non-GAAP earnings came in at 84 cents per share, 8 cents ahead of expectations.
This success in the green economy underlies HSBC analyst Meike Becker's rating of NextEra stock. She writes, “We believe that NextEra is an excellent allocator of capital in the fast-growing, low-risk, high-margin U.S. network and renewable energy market.” According to our estimates, Florida Power & Light (FPL) — a fully regulated utility — will Achieve a compound annual growth rate (EPS) of 7-12% over the period 2025-2030e, with investments in renewable energy and power grids and excellent returns for a great service at a low cost. As a leading renewable energy developer in the highly attractive U.S. market, we expect NextEra Energy Resources to achieve a 4-10% EPS CAGR over the 2025-2030 period. The inflation reduction law has further improved the prospects.”
Looking ahead, Becker has a buy rating on NEE, and its $90 price target implies a 21% gain over the year. (To see Becker's track record, Click here.)
There are 11 recent analyst ratings for NextEra, including 8 buy and 3 hold, giving the stock a moderate buy consensus rating. The shares, which trade for $74.17, have an average price target of $89.50, which suggests a 21% 12-month gain. (See NextEra's stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is for informational purposes only. It is very important to do your own analysis before investing.