AES Earnings: Strong Second Half Needed To Meet Full-Year Guidance
We are reaffirming our $23 per share fair value estimate and no-moat rating after AES AES reported second-quarter adjusted earnings of $0.21 per share, compared with $0.34 in the same year-ago period.
At the beginning of the year, we viewed AES as rich, with the stock trading 27% above our fair value estimate. AES now trades at a 14% discount to our fair value estimate as of Aug. 4.
The company reaffirmed 2023 earnings per share guidance of $1.65-$1.75, consistent with our expectations, but will need to have a strong second half to meet that target. Lower margins at AES Andes, increased costs at AES’ renewable energy unit, and higher interest expense had a negative impact on first-half earnings.
Management previously noted that the majority of earnings would come in the second half of the year. Completion of 3.4 gigawatts of renewable generation will be needed to support earnings, with the company having only installed 786 megawatts year to date. Management reaffirmed its expectations to complete all 3.4 GW.
Management also reaffirmed its 7%-9% earnings growth rate through 2025, which we expect AES to achieve. Growth should be supported by continued development of the company’s renewable energy project backlog and growth at the company’s regulated utilities.
In Ohio, AES is expecting approval of the company’s new electric security plan by the end of August, at which point new rates would go into effect. New rates will support earnings growth in the second half. In Indiana, the company filed its first rate case since 2018 as the unit seeks recovery of investments and higher costs. Utility rate base is expected to increase 10% annually over the next five years.
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