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Macquarie Capital initiates Vistra coverage at 'outperform'

Macquarie Capital (USA) Inc. analysts on March 28 initiated coverage of Vistra Energy Corp. at "outperform," given their "optimistic" view about incremental efficiencies at the Texas integrated power producer.

Although power producers in the Lone Star State "don't have good track record" of managing their balance sheets during summers, Macquarie analysts said they are ready to give Vistra Energy management the "benefit of the doubt" due to their experience in managing power and retail portfolios, and recent lessons learned from lengthy debt restructuring.

Moreover, the likely shut down of a number of coal-fired and nuclear power facilities by GenOn Energy Inc. and FirstEnergy Solutions Corp. in the PJM Interconnection could offer a "meaningful upside" to otherwise bearish capacity price expectations, especially for the rest of the market zone where most of Vistra's PJM plants will be located.

"We are concerned about the accelerating rotation of [Vistra Energy]'s shareholder base and growing volatility in financial markets, but hope the new lower-levered IPP business model could garner more support from generalist investors," the analysts wrote in a note to investors.

Vistra Energy is in the middle of acquiring Dynegy Inc. in a $10.57 billion all-stock transaction to form the largest publicly traded independent power producer with about 40 GW of combined capacity across the U.S. The deal is expected to close this spring.