The AES Corporation

AES Details

The AES Corporation (NYSE: AES) is a Fortune 500 global power company accelerating the future of energy.

Q3FY21 Result Performance (For the Quarter Ended 30 September 2021)

• AES has recorded an increase in total revenue to $3,036 million in Q3FY21 from $2,545 million in the pcp.
• The company has delivered diluted earnings per share from continuing operations of $0.48, an increase of $0.98 from Q3FY20, due to higher impairments and losses on the sale of businesses in 2020 along with higher contributions from renewables growth and the Southland portfolio in the United States.
• However, the adjusted earnings per share stood at $0.50, up by $0.08 compared to pcp, driven by higher contributions from renewables growth and the Southland portfolio in the United States, and lower parent company interest expense.

Source: Company Reports, Analysis by Kalkine Group

Recent Update

• The company, on 8 December 2021, introduced a new first-of-its-kind solar installation robot – Atlas.
• On 7 December 2021, AES has finished the purchase of Valcour Wind Energy from global investment firm Carlyle. The Valcour portfolio currently generates around 25% of the State of New York's wind power.
• As per the press release dated 3 December 2021, the board of directors of the company has agreed an increase of 5% in the quarterly common stock dividend, from $0.1505 per share to $0.1580 per share, starting from Q1FY22.

Key Risks

The company is exposed to the risks of changes in the availability of its generation facilities or distribution systems owing to the rise in scheduled and unscheduled plant outages, equipment failure, failure of transmission systems, etc. Further, it is prone to the risks of economic, social, and political instability in any particular country or region.

Outlook

AES has bagged 4 GW of new PPAs for renewable energy projects in year-to-date 2021, resulting in an increase in the backlog to 9.2 GW. Considering the year-to-date 2021 progress, the company has raised the full year 2021 target to sign renewables under long-term PPAs to 5 GW, from 4 GW.

Further, the company has reaffirmed its 2021 adjusted EPS guidance range of $1.50 to $1.58 and is forecasting it to remain at the low end of the range reflecting the $0.07 per share non-cash adjustment to include ~40 million shares underlying the purchase contract component of the equity units issued in the month of March 2021 in the company's EPS calculations.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Orange Color Line Reflects RSI (14-Period)

Stock Recommendation

The stock has been valued using an EV/Sales multiple based relative valuation (on an illustrative basis) and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to peer average EV/Sales multiple (NTM basis) considering higher current ratio in Q3 FY 2021 on the YoY basis as well as decent outlook.

Considering the aforementioned factors, we give a “Buy” recommendation on the stock at the closing market price of $23.61 per share, down by 1.3% on 14^th December 2021.

The AES Corporation (AES) is a part of Kalkine’s Global Fully Charged Product

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices

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