AES: A Value Play With An Upside

Core Viewpoint - AES Corporation is positioned as a growing player in the renewable energy sector, with a focus on expanding its solar power portfolio and achieving significant growth in base rates, despite a lower credit rating compared to peers [2][3][11]. Company Overview - AES Corporation is a US-based utility company with over $12 billion in revenues and a net income of approximately $250 million, operating in 15 countries and employing over 10,000 people [2]. - The company has a current dividend yield of 3.77%, which is lower than many savings accounts, making it less attractive for income-focused investors [2]. Growth Potential - AES aims to grow its solar power portfolio to 25-30 GW by 2027, with an expected annualized base rate growth of 10%, one of the highest in the US utility sector [3][4]. - The company plans to exit coal by 2025, transitioning to a predominantly renewable energy portfolio, which is considered one of the fastest transformations in the sector [8][9]. Financial Stability - AES has long-term USD-denominated contracts and a solid hedging strategy for financial costs, which provides confidence in projected returns [4][6]. - The company is on track to add 3.5 GW of new capacity in 2023-2024, doubling its 2022 figures, and has a backlog of over 13 GW of projects with signed contracts [4][10]. Customer Base and Demand - AES has strong relationships with major corporate customers, particularly in the technology and data center sectors, which are expected to drive demand for renewable energy [5][10]. - The company is focused on large technology customers, which represent nearly 50% of its US renewables backlog [5]. Valuation and Investment Outlook - AES is currently trading at a P/E ratio of less than 10.5, which is attractive compared to its historical average of 13-14, indicating significant upside potential [11][14]. - The company has demonstrated an average earnings growth rate of nearly 8% annually over the past nine years, suggesting a strong growth trajectory [11]. Strategic Focus - AES has committed to investing heavily in the renewables sector, with around 80% of its capital allocated to this area through 2027 [10]. - The company has raised its growth target from 3-5% to 5-7%, reflecting its strong performance and strategic focus on renewables [10][14].