On Tuesday, BMO Capital Markets sustained its Outperform rating for Algonquin Power & Utilities Corp. (NYSE:AQN), with a steady price target of $7.50. The firm anticipates a potential announcement regarding Algonquin's renewable power operations, excluding its Atlantica Sustainable Infrastructure plc (AY) and hydroelectric portfolio, which may occur by the time the company reports its second quarter 2024 results.
The firm outlined the top ten inquiries it has fielded about Algonquin's renewable energy segment. BMO Capital Markets projects that this business could command a valuation of at least 10 times its earnings before interest, taxes, depreciation, and amortization (EBITDA). The expected proceeds from this valuation are likely to be primarily directed towards reducing the company's debt.
The transition of Algonquin to a pure-play utility is seen as a move that could lead to a reevaluation of the company's worth. BMO Capital Markets estimates that by 2026, Algonquin could have a price-to-earnings (P/E) ratio of approximately 11.5 times, which is favorable when compared to the range of 12.5 to 19 times typically seen among Canadian utilities.
BMO's analysis suggests that the risk/reward profile for Algonquin Power & Utilities Corp. remains compelling, which is reflected in the affirmation of both the price target and the Outperform rating. The firm's outlook is based on the premise that the forthcoming developments in Algonquin's renewables division will enhance the company's financial position and contribute to a positive reassessment of its stock value.
In other recent news, Algonquin Power & Utilities Corp. has seen several significant developments. Wells Fargo has reiterated an 'Overweight' rating on the company, maintaining a price target of $8.50. This rating is based on the potential sale of Algonquin's renewable energy division, which analysts believe could serve as a catalyst for growth.
Algonquin's Q1 2024 earnings fell short of expectations due to lower-than-average wind resource availability and rising interest expenses, leading to a revised earnings projection for 2024 down to $0.51 from $0.53.
In addition, Algonquin is advancing its shift towards becoming a pure-play utility through the sale of its stake in Atlantica Sustainable Infrastructure. This move aligns with the company's strategic review of its renewable energy portfolio. Analysts from BMO Nesbitt Burns Inc. and RBC Capital Markets have rated Algonquin as 'Outperform' and 'Sector Perform' respectively.
Lastly, Algonquin has entered into an agreement to support the sale of its stake in Atlantica to Bidco, further aligning with its ongoing shift towards regulated utilities.
InvestingPro Insights
Adding to the analysis by BMO Capital Markets, real-time data from InvestingPro provides a deeper look into Algonquin Power & Utilities Corp.'s financial health and market performance. With a market capitalization of $4.58 billion and a current P/E ratio reflecting a challenging period with a negative value of -12.1, the company's valuation complexities are evident. However, the adjusted P/E ratio for the last twelve months as of Q1 2024 stands at 55.62, highlighting a forward-looking market sentiment that may be anticipating a return to profitability, as suggested by analysts. This is further supported by the company's significant dividend yield of 7.26%, showcasing its commitment to returning value to shareholders. Notably, Algonquin has maintained its dividend payments for 27 consecutive years, a testament to its financial resilience and strategic prioritization of shareholder returns.
InvestingPro Tips for Algonquin Power & Utilities Corp. indicate that while the company operates with a significant debt burden, net income is expected to grow this year. Additionally, with analysts predicting profitability for the year, the company's strategic efforts to streamline operations could be well-timed. For investors seeking to delve deeper into Algonquin's financials and future prospects, InvestingPro offers further insights and tips. There are additional tips available on the platform, which can be accessed with a subscription. To enhance your investment research, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.