Morningstar | AES Reports Strong 3Q, Announces Sell-Down of sPower and Executive Transition
We are increasing our fair value estimate to $14 per share from $13 after AES reported strong 2018 third-quarter EPS and reaffirmed 2018 earnings guidance. AES reported adjusted earnings of $0.35 per share in the recently ended quarter compared with $0.23 per share in the same period last year.The strong results give us additional confidence in our unchanged $1.20 EPS estimate for 2018. Higher contracted sales and pricing in Chile and Columbia, the 2017 tariff reset in Argentina, and stronger energy sales at Southland, which benefited from capacity constraints in southern California, were positive earnings drivers.
The increase in our fair value estimate was primarily due to two announcements that resulted in our assumption that asset sales improving the company's return on invested capital will be larger and continue longer than previously assumed. First, AES announced it had agreed to sell 24% of its interest in sPower, a solar and wind developer that it acquired with the Alberta Investment Management Corporation in February 2017. Although additional details of the future transaction have not yet been disclosed, management indicated that its expected return on the investment in sPower would increase to 13% following the closing from high-single-digit returns at the time of the acquisition.
The second factor driving our fair value estimate higher was last week’s announcement that Executive VP and CFO Tom O’Flynn will focus on raising third-party capital to finance AES’ growth activities beginning next year. O’Flynn, along with CEO Andres Gluski, were the chief architects responsible for reducing AES’ global footprint by exiting 13 countries, raising over $5 billion in asset sale proceeds, and strengthening AES’ balance sheet. The sell-down of sPower is an example of the kind of transactions O’Flynn will focus on in the future. Based on his past performance, we think this executive change will also lead to higher returns on invested capital.
AES is a holding company. Through its subsidiaries, the company operates a portfolio of electricity generation and distribution businesses. The first business line is generation, where the company owns and/or operates power plants to generate and sell power to customers, such as utilities, industrial users, and other intermediaries. The second business line is utilities, where the company owns and/or operates utilities to generate or purchase, distribute, transmit and sell electricity to end-user customers in the residential, commercial, industrial and governmental sectors within a defined service area. In certain circumstances, the company's utilities also generates and sells electricity on the wholesale market.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.