The AES Corporation (AES - Get Rating) in Arlington, Va., is a diversified power generation and utility company. It owns and operates power plants to generate and sell power to customers that include utilities, industrial users, and other intermediaries. The company’s global footprint spans more than 14 countries, operating more than 100 power plants. Shares of AES have gained 20%-plus in price over the past year. In addition, the stock is relatively stable, as reflected by its beta of less than 1.

The company is actively working to strengthen its renewable energy portfolio amid sustainability initiatives worldwide. Moreover, AES is seeking to achieve net-zero emissions by 2040. Recently, it announced the acquisition of a 49.9% stake in AES Colón, a liquefied natural gas (LNG) plant, increasing its ownership to 100%. LNG emits less carbon than other fuels. “This acquisition will contribute to maximizing the value of our regional LNG business through the development of important synergies and flexibility across our portfolio,” said Juan Ignacio Rubiolo, President for AES’ Mexico, Central America, and the Caribbean Strategic Business Unit.

In September, PetroVietnam Gas signed an agreement with AES to form a joint venture to operate an LNG terminal as part of a $1.3 billion LNG-to-power complex. Analysts expect structural global LNG demand to rise 14% by 2025. Also, the U.S.’ liquefaction capacity could rise by more than half, overtaking Australia by 2024. Given the upbeat demand projections, we think AES should benefit in the long term. However, these developments are not expected to generate immediate returns.

Here’s what could shape AES’ performance in the near term:

Mixed Financials

AES’ total revenues increased 21.8% year-over-year to $2.70 billion in its fiscal second quarter, ended June 30. Its income from continuing operations stood at negative $81 million, while its net income came in at a negative $77 million, reflecting a decline of 2,666.7% from the same period last year. However, its net income attributable to the company grew 133.7% from its year-ago loss to $28 million. The company’s EPS has increased 133.3% year-over-year to $0.04.

Mixed Valuation

In terms of forward GAAP P/E, AES is currently trading at 29.33x, which is 54.7% higher than the 18.96x industry average. Also, AES’ 5.22 forward Price/Book ratio is 180.25% higher than the 1.86 industry average.

However, its 1.93 non-GAAP forward PEG ratio is 43.8% lower than the industry average. AES’ 1.61 forward Price/Sales ratio is 34.6% lower than the industry average.

POWR Ratings Reflect Uncertainty

AES has an overall C rating, translating to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

AES has a D Momentum grade, which is justified because the stock is trading below its 200-Day moving average.

The stock has a grade of C for Value, consistent with its mixed valuation.

Of the 55 stocks in the Utilities – Domestic industry, AES is ranked #10.

Beyond what I have stated above, one can also view AES’ grades for Quality, Growth, Sentiment, and Stability here.

View the top-rated stocks in the Utilities – Domestic industry here.

Bottom Line

AES is actively working to strengthen its operational base, focusing on the expansion of its LNG capacities. However, it should take a while for the company to capitalize on the growing demand for LNG. And even though the company’s long-term prospects look bright, AES is in a downtrend and is trading below its 200-day moving average. So, we think it could be wise to wait for a better entry point in the stock.

How Does AES Corporation (AES) Stack Up Against its Peers?

While AES has an overall POWR Rating of C, one might want to consider looking at its industry peer, UGI Corporation (UGI - Get Rating), which has a B (Buy) rating.

AES shares were trading at $24.00 per share on Monday afternoon, down $0.07 (-0.29%). Year-to-date, AES has gained 4.00%, versus a 17.40% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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