EUR 850.00 For Business Accounts Only

Morningstar | AES Reports Flat 2Q Earnings; Raising Fair Value Estimate Driven by Strong sPower Performance. See Updated Analyst Note from 07 Aug 2018

We are increasing our fair value estimate to $13 per share from $12 per share after AES reported flat 2018 second-quarter EPS but indicated it had signed 1,473 MW of long-term renewable energy power purchase agreements year to-date that are scheduled to achieve commercial operation by 2020. PPAs signed in the first quarter were only 868 MW.

sPower, a utility-scale solar energy developer acquired by AES in 2017, signed the bulk of these commercial and industrial PPAs in the U.S. The acquisition is performing better than we expected, and management indicated that it has already provided an upstream dividend of $100 million, 25% of AES’ original investment in sPower.

AES reported adjusted earnings of $0.25 per share in the recently ended quarter, flat with the same period last year. Due to a strong first quarter, AES has booked $0.52 of adjusted EPS year to date and appears well on track to achieve our $1.20 full-year EPS estimate with the typically largest third quarter still ahead.

AES reaffirmed its 2018 adjusted earnings guidance of $1.15-$1.25 per share and its 8%-10% average annual EPS growth through 2020 using 2017 EPS of $1.08 as the base year. Due in large part to the strong performance of sPower, we have increased our EPS estimates in 2021 and 2022, resulting in a compound annual growth rate of 9.2% versus our previous estimate of 8.8%.

sPower’s success is especially positive since many of the long-term PPAs are with creditworthy counterparties, including Microsoft and Apple. Corporate interest in renewables remains strong as companies work to improve their sustainability. However, our enthusiasm is somewhat tempered by the fact that U.S. wind and solar energy tax benefits are tapering off.

For additional comments on the reduction in wind and solar energy tax benefits see our report, "Coal's Future Still Ugly."