AES stays strong
AES (AES), one of the top gainers among utilities last year, has continued its upward march. This year, AES stock has risen more than 25%, significantly outperforming broader utilities. Its better-than-expected earnings and favorable commentary by the company’s management have boosted investors’ confidence lately, as indicated by its market performance.
With AES stock trading close to a decade high, investors must be wondering if the stock has any steam left. In this series, we’ll look at its earnings growth, valuation, and outlook.
As shown in the chart above, which shows movement by AES, the Utilities Select Sector SPDR ETF (XLU), and broader markets, AES’s rally started in early Q2 2018. It has surged ~70% over the past year, while XLU has risen ~15%. Merchant power player NRG Energy (NRG) has risen 38%.
AES obtains a large portion of its earnings from competitive operations, making its earnings less stable. Its presence in 15 countries also makes its earnings susceptible to currency risk, unlike domestic regulated utilities.
Over the past few years, AES has exited several countries to streamline its operations. With operations in fewer countries, AES seems to have improved its business mix, which could bode well for its long-term earnings growth.
AES’s (AES) high debt could concern some investors. At the end of last year, AES had ~$18 billion in total debt and a “BB+” credit rating, just below investment grade.
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