In this series, we’ve been analyzing the S&P 500 Utilities stocks that have handsome upside potential for the next 12 months. The most globally diversified utility, AES Corporation (AES), has a potential upside of more than 18% over the next 12 months compared to its current market price of $10.9. Wall Street analysts have given it a mean price target of $12.9.
On January 9, 2018, of the nine analysts covering AES, one recommended a “strong buy,” four recommended “buys,” and three recommended “holds” on the stock. There were no “sell” recommendations on AES.
In the last six months, AES Corporation stock has fallen 2%. The Utilities Select Sector SPDR ETF (XLU) is currently trading near its levels from six months ago. In comparison, the SPDR S&P 500 ETF (SPX-INDEX) (SPY) has risen more than 12% in the same period.
AES stock has mostly trended downward in the last year. Its lower-than-expected earnings in the last few quarters shaped its stock performance in 2017. Its presence in multiple countries exposes it to currency risk, and the stronger US dollar has dented its bottom line over the last few years. Although AES has underperformed its peers, its dividend profile looks attractive.
On January 8, 2018, AES stock was trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 8.6x. Its five-year historical EV-to-EBITDA multiple is just above 7x.
Currently, broader utilities’ average valuation is close to 11x. Consequently, AES stock appears to be trading at a discounted valuation compared to the industry average (IDU). AES seems to be trading at a premium to its historical valuation.