The AES Corporation

AES Details

The AES Corporation (NYSE: AES) operates as a diversified electricity generation and distribution business portfolio through its subsidiaries and affiliates.

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

• The company has delivered diluted EPS from continuing operations of $0.48 in Q3FY21, increasing $0.98 from Q3FY20. This was driven by higher impairments and losses on the sale of businesses in 2020 and higher contributions from renewables growth and the Southland portfolio in the United States.
• The adjusted EPS stood at $0.50 in Q3FY21, up by $0.08 compared to pcp, driven by higher contributions from renewables growth, the Southland portfolio in the United States, and lower parent company interest expense.

Source: Company Reports, Analysis by Kalkine Group

Recent Update

• As per the press release dated 2 November 2021, the company has signed a 15-year agreement with Microsoft to assist the company in achieving its 100/100/0 by 2030 goal. As per the agreement, Microsoft will use the around-the-clock renewable energy sourced through this agreement to power its data centers located in Virginia.
• On 28 October 2021, AES' Energy Storage Joint Venture, Fluence Energy, Inc., declared the pricing of its IPO of Class A common stock, which valued Fluence at around $4.7 billion.

Outlook

The company has bagged 4 GW of new PPAs for renewable energy projects in year-to-date 2021, increasing 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-$1.58. It is forecasted to remain at the low end of the range owing to the impact of a non-cash adjustment of $0.07 per share related to equity units issued in March 2021. Additionally, it has reaffirmed its annualized growth target of 7-9% through 2025 from the base year of 2020.

Key Risks

The company is exposed to the risks of changes in its generation facilities or distribution systems' availability due 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 country or region, as well as adverse changes in currency exchange rates.

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

Technical Overview:

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation

The company has delivered a 9-month and one-year return of ~-14.40% and ~+13.92%, respectively. The stock is trading lower than the average price of the 52-week low-high range at $20.27 - $29.07.

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). In addition, a slight premium has been applied to peer average EV/Sales multiple (NTM basis), considering its healthy performance in Q3FY21, reaffirming 2021 Adjusted EPS guidance, and a record backlog.

Considering the factors above, we give a “Buy” recommendation on the stock at the closing market price of $23.89 per share, down by 0.08% as of 9^th November 2021.

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

Disclaimer

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