AES Corporation (AES) stock hit a new 52-week high of $18.62 yesterday. Also, it gained in 8 of the last 9 trading sessions. The stock shows a solid momentum this year and is sitting at a hefty gain of 30% YTD (year-to-date).
What’s behind AES’s recent strength?
AES reported better-than-expected earnings in the third quarter. Also, it reported earnings of $0.48 per share in the third quarter of 2019, more than 37% higher against the third quarter of 2018. For 2019, the company maintained its earnings guidance range of $1.30 to $1.38 per share. However, it aims to grow 7% to 9% per year through 2022, which is higher than the industry average. AES operates in 14 countries and its wide geographical presence makes its earnings susceptible to exchange rate risk. Also, it is involved in large competitive operations, which makes its earnings relatively less stable.
AES announced its 10-year agreement with Google (GOOGL) to develop and adoption of clean energy using Google Cloud Technology. With its partnership, AES will work to improve the experience of its corporate customers in clean energy.
AES stock is currently trading at $18.6, almost 12% and 11% above its 50-day and 200-day simple moving average levels, respectively. The large premium against both these support levels suggests the strength in the stock. Also, its level close to $16.75 might act as a support in the short term. If its 50-day level breaches above the 200-day level, it might open more upside for the stock. Technical analysts call it a “golden cross.”
The stock is trading in an overbought zone with its RSI (Relative strength index) at 84. So, it indicates that the stock might see a reversal in its direction in the short term.
AES stock: Dividend and valuation
The recent rally in AES has made its dividend yield look small. Currently, it’s trading at a yield of 3%, in line with the peers’ average. What makes its dividend profile stand out is its dividend growth. Additionally, its dividends rose by more than 22% compounded annually in the last five years. In comparison, utilities grew their dividends by an average of 4% in the same period. AES is expected to pay a dividend of $0.55 per share in 2019. The company started paying dividends in 2012.
Currently, AES stock is trading 13 times its 2020 EPS. Historically, the stock traded below 10x its earnings. Thus, AES stock currently looks to be trading at a premium in historical terms. Also, merchant power company NRG Energy (NRG) is trading 9 times its estimated earnings for the next year. NRG stock is marginally up YTD. On average, utilities are trading 19 times of forward earnings. Although, AES is looking to be trading at a large discount compared to broader utilities’ average, that might not mean an attractive valuation. AES has always traded with a large discount against the industry average.
Analyst price targets for AES stock
AES stock offers a flattish upside based on analysts’ mean target price of $18.79. So, among nine analysts tracking the stock, five recommended it as a “hold,” one recommended a “strong buy,” and three recommended a “buy.” However, none of the analysts recommended a “sell” as on November 21.
Additionally, NRG Energy offers a potential upside of more than 21% against its current market price of $39.64. Analysts have given it a mean target price of $48.11.
Utilities (XLU) are some of the sweet spots among equities this year. They are up almost 20% so far this year. Read Utilities Look Strong amid Growing Recession Fears to learn more.