Why Vistra Stock Popped on Tuesday
Key Points
DOE is giving Vistra a $4.2 billion loan.
The funds will add 20 years' service life to existing nuclear power plants.
The funds will also add 10% to Vistra's power production capacity.
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Nuclear power stock Vistra Corp (NYSE:VST) jumped 9.1% through 10:10 a.m. ET Tuesday after the U.S. Department of Energy announced it will loan the company $4.2 billion to finance nuclear plant upgrades "across Vistra's nuclear fleet in Pennsylvania and Ohio."
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What's in the loan?
President Trump has announced an "American nuclear renaissance" in two parts: first, by facilitating the construction of new nuclear plants, including small modular reactors (SMRS), and second, by restarting, extending service life, or expanding energy production at existing nuclear installations. The Vistra contract is of the second part.
DOE explains that the $4.2 billion Vistra loan "will preserve nearly 4 gigawatts (GW) of reliable baseload power" and then expand production more than 10%, adding 433 megawatts (MW) of new nuclear capacity. Upgrades and modernization work will add 20 years to the expected service life of Vistra's existing nuclear fleet.
DOE notes that part of the funds may also be used to expand energy production at Vistra's Comanche Peak Nuclear Power Plant in Texas.
What it means for Vistra investors
The loan comes with strings attached. Vistra must "satisfy certain technical, legal, environmental, and financial conditions before the Department enters into definitive financing documents and funds the loan" -- which conditions are not described in the announcement.
So it's possible the loan won't actually come to pass.
Assuming it does, though, Vistra would presumably gain access to the funds at attractive rates. The loan is still a loan, though, and will grow Vistra's debt load by about 20%, to $24.7 billion, while expanding its energy production capacity by only 10%. That's probably only a great deal for Vistra if energy prices keep rising.
The good news: Analysts think they will, and expect Vistra to grow earnings 27% annually over the next five years.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vistra. The Motley Fool has a disclosure policy.
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