The AES Corp. – Value Analysis (NYSE:AES) : April 17, 2017

Capitalcube gives The AES Corp. a score of 19.

Our analysis is based on comparing The AES Corp. with the following peers – Dominion Resources, Inc., Duke Energy Corporation, American Electric Power Company, Inc., NRG Energy, Inc., Ormat Technologies, Inc., Sempra Energy, Enel Generacion Chile S.A. Sponsored ADR, SunPower Corporation and Enel Americas S.A. Sponsored ADR (D-US, DUK-US, AEP-US, NRG-US, ORA-US, SRE-US, EOCC-US, SPWR-US and ENIA-US).

Investment Outlook

The AES Corp. has a fundamental score of 19 and has a relative valuation of UNDERVALUED.

Fundamental Score

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Company Overview

  • Compared to peers, relative underperformance over the last year is in contrast with the more recent outperformance.
  • It trades at a lower Price/Book multiple (1.16) than its peer median (1.70).
  • The market expects faster earnings growth from AES-US than from its peers and also a turnaround in its current ROE.
  • AES-US has relatively low net profit margins while its asset efficiency is relatively high.
  • Compared with its chosen peers, the company’s annual revenues and earnings change at a slower rate, implying a lack of strategic focus and/or lack of execution success.
  • AES-US‘s return on assets currently and over the past five years has trailed the peer median and suggests the company might be operationally challenged relative to its peers.
  • The company’s relatively low gross and pre-tax margins suggest a non-differentiated product portfolio and not much control on operating costs relative to peers.
  • While AES-US‘s revenues have increased slower than peer median, the market currently gives the company a higher than peer median P/E ratio and may be factoring in some sort of a strategic play.
  • The company’s relatively low level of capital investment and below peer median returns on capital suggest that the company is in maintenance mode.
  • AES-US seems too levered to raise additional debt.

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Leverage & Liquidity

AES-US would seem to have a hard time raising additional debt.

  • With debt at a relatively high 69.53% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 41.80%), and relatively tight interest coverage level of 1.51x, AES-US would have a hard time raising much additional debt. The company has a Constrained profile in terms of its ability to take on further debt.
  • All 9 peers for the company have an outstanding debt balance.

AES-US has maintained its Limited Flexibility profile from the prior year-end.

  • AES-US‘s interest coverage is its lowest over the last four years and compares to a high of 2.24x in 2012.
  • Compared to 2015, interest coverage has remained relatively stable for both the company (1.51x) and the peer median (2.74x).
  • AES-US‘s debt-EV is similar to its four-year average debt-EV of 69.75%.
  • While its debt-EV decreased to 69.53% from 72.48% (in 2015), its peer median increased during this period to 41.80% from 40.04%.
  • Relative to peers, debt-EV fell 4.72 percentage points.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Dominion Resources, Inc. 41.27 0.52 2.92 14.41
Duke Energy Corporation 48.29 0.7 3.2 14.54
American Electric Power Company, Inc. 42.33 0.64 3.6 22.88
NRG Energy, Inc. 87.14 1.46 1.25 11.1
Ormat Technologies, Inc. 27.34 2.5 3.34 24.53
Sempra Energy 38.83 0.52 2.56 15.57
Enel Generacion Chile S.A. Sponsored ADR 20.17 0.98 8.72 55.82
SunPower Corporation 74.66 1.67 -3.56 -7.19
Enel Americas S.A. Sponsored ADR 34.27 1.25 2.43 58.69
AES Corporation 69.53 1.22 1.51 11.3
Peer Median 41.8 1.1 2.74 15.06
Best In Class 20.17 2.5 8.72 58.69

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Company Profile

The AES Corp. operates as a power generation and utility company. It operates through the Generation and Utilities segments. The Generation segment refers to the utilization of fuels and technologies to generate electricity such as coals, gas, hydro, wind, solar and biomass. The Utilities segment comprises the transmission, distribution, and in certain circumstances, generate power. It also operates through the following business units: United States; Chile, Colombia, and Argentina; Brazil; Mexico, Central America and Caribbean; Europe, and Asia. The company was founded by Dennis W. Bakke and Roger W. Sant in 1981 and is headquartered in Arlington, VA.

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