On Wednesday, Evercore ISI sustained its positive outlook on AES Corp (NYSE:AES) shares with an Outperform rating and a stable $23.00 price target. Evercore ISI highlighted the robust transaction multiple for AES's recent sale, which aligns with a trend of high multiples in the utilities sector. The sale's multiple is approximately 40 times the last twelve months (LTM) earnings, surpassing the average trading multiple of peers, which is around 19 times.
The AES transaction is compared to recent utility sector deals, such as NiSource (NYSE:NI)'s minority interest sale of NIPSCO in June 2023 at about 33 times LTM earnings, and Duke's Indiana minority interest sale in June 2021 at approximately 28 times LTM earnings. Moreover, it is in line with FirstEnergy (NYSE:FE)'s minority interest asset sales announced in November 2021 and February 2023, which were executed at 39-40 times LTM earnings, including higher-multiple FERC-regulated transmission assets.
The rate base multiple for the AES Ohio sale announced today is estimated at 1.9 times the 2023 rate base. Evercore ISI views this as a strategic move, particularly noting the commitment from CDPQ to fund its share of AES Ohio's near-term capital requirements. This is seen as a confidence booster for investors regarding AES's financing plan, especially with the rapid growth of data centers in Ohio.
The firm also recognizes AES Corp's continued progress in its asset sale program, which is expected to further secure the company's long-term financial outlook. This ongoing strategy is aimed at reducing risks and strengthening the company's position in the market.
In other recent news, AES Corporation has been making strategic moves to reshape its portfolio and meet future energy demands. The company has announced the sale of a 30% indirect equity interest in its Ohio subsidiary to CDPQ, a Canadian pension fund, for $546 million. This transaction is part of a broader plan to achieve over $2.7 billion from its $3.5 billion asset sale target set for the period of 2023 to 2027.
AES Ohio, the utility firm, plans to invest over $1.5 billion from 2024 to 2027 to enhance system reliability, including upgrades to transmission infrastructure and grid modernization. The company expects this investment to meet the increasing demand for power, particularly from AI and data centers, potentially boosting AES Ohio's peak load by over 50% by the end of the decade.
In addition to these developments, Jefferies has initiated coverage of AES Corp, assigning the stock a Buy rating. The firm highlighted AES's shift towards US renewables and regulated utilities, improving the quality of the company's earnings.
AES Corporation also reported a strong financial performance in its second-quarter earnings call, with adjusted EBITDA with tax attributes at $843 million and adjusted EPS at $0.38. The company is on track to meet its 2024 financial goals, with a strong focus on renewable energy and technological advancements in the sector. These are some of the recent developments affecting AES Corporation.
InvestingPro Insights
As Evercore ISI maintains a favorable view on AES Corp (NYSE:AES), recent data from InvestingPro provides additional context to the company's financial landscape. AES Corp's market capitalization stands at $13.68 billion, reflecting the size and scale of the company within the utilities sector. Despite a challenging environment, AES has demonstrated a commitment to shareholder returns, raising its dividend for 12 consecutive years, a testament to its financial discipline and a positive signal for long-term investors.
InvestingPro data also indicates a Price/Earnings (P/E) ratio of 17.52, which is in line with the industry average, suggesting that the company is fairly valued compared to its peers. Moreover, the company has seen a significant price uptick over the last six months, with a 31.84% return, aligning with the positive sentiment expressed by Evercore ISI. This performance is further supported by a dividend yield of 3.59%, which is attractive to income-focused investors.
For those interested in a deeper dive into AES's financial health and future prospects, InvestingPro offers additional tips, including insights into the company's debt burden and cash flow metrics. The platform currently lists 11 more InvestingPro Tips for AES, providing a comprehensive analysis for investors looking to make an informed decision. Discover these valuable insights and more at InvestingPro.
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