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Would You Buy AES Stock at Its Current Valuation?

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Nov. 20 2020, Updated 5:19 p.m. ET

AES’s valuation

AES Corporation (AES) appears to be trading at a comparatively fair valuation compared to the industry average. But next to its historical average, the stock seems a bit pricey. On June 23, 2017, AES stock was trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratio of 8.2x.

AES’s five-year historical average is near 7.5x. The industry average (XLU) EV-to-EBITDA multiple is near 10x.

By comparison, industry giant Duke Energy (DUK) is now trading at an EV-EBITDA multiple of 12x, while renewables leader NextEra Energy (NEE) is trading at a multiple near 12.2x. Sempra Energy (SRE) has a valuation multiple of ~15.3x, and Dominion Resources’ valuation ratio is just above 16x.

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AES’s dividends are pretty attractive

Although AES has underachieved peers in terms of market performance, its dividend profile is quite alluring and beats many industry giants. AES’s annual dividend growth target of 10% falls approximately in line with NextEra Energy’s (NEE) and Dominion Resources’ (D) expectations for dividend growth.

NextEra Energy’s dividend yield is around 2.7%, while AES is trading at a dividend yield of 4.2%. You can learn more about AES’s dividends in Market Realist’s series Comparing AES’s Dividend Profile with Its Peers.

If you want to read about the dividend profiles of the two largest regulated utilities in the industry, check out Market Realist’s Southern Company and Duke Energy: A Dividend Face-Off.

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