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Large Global Presence Dragged AES’s Stock Performance in 2015

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Market performance

Over the last couple of quarters, the rallying US dollar has marred AES’s (AES) earnings. This has been reflected in its stock performance. AES has lost more than 18% in the last 12-month period.

The chart above depicts the collapsing performance of AES compared to its peers Pinnacle West Capital (PNW) and Ameren (AEE). Utilities and AES have risen nearly 6% since the beginning of 2016.

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AES’s valuation after its 4Q15 earnings

As of February 25, 2016, AES is trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 7.7x. Its average five-year EV-to-EBITDA is 6.7x. This shows that AES is trading at a premium compared to its own five-year historical EV-to-EBITDA valuation.

AES’s forward EV-to-EBITDA for 2016, using its 2016 EBITDA estimate, is 6.5x. This indicates expectations of higher EBITDA for AES in 2016. The utility sector’s (VPU) EV-to-EBITDA average is 8.7x. In comparison, Pinnacle West Capital has an EV-to-EBITDA ratio of 8.2x, while AES’s large-cap peer Duke Energy (DUK) has a ratio of 10.5x.

The EV-to-EBITDA multiple is a valuation metric that indicates whether a stock is overvalued or undervalued, regardless of a company’s capital structure.

Dividend

AES has increased its quarterly dividend by 10% as of 1Q16. It paid $0.40 dividends per share in 2015. As of February 25, 2016, its dividend yield stands at 4.6%, which is slightly above the industry average.

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