AES Earnings: AES on Track to Develop Full-Year Renewable Target; Reaffirms Long-Term Targets

We are reaffirming our $16 per share fair value estimate and no-moat rating for AES after the company reported third-quarter adjusted earnings of $0.60 per share compared with $0.63 in the same year-ago period.

The company reaffirmed 2023 EPS guidance of $1.65 to $1.75 with expectations to be at the high end of the range. Importantly, AES reaffirmed its 7% to 9% long-term earnings growth rate through 2025. This had been a source of concern for investors given the current macro environment. We continue to expect AES to achieve its growth rate in large part to its renewable energy development program and continued growth at its regulated utilities.

Management has signed contracts for 3.7 gigawatts year to date, which we think highlights the continued demand for renewable energy. The company is on track to complete 3.5 GW of renewable energy projects by year-end. This is up 100 MW from the second quarter. Addition of renewable energy projects should add $0.20 to full-year EPS.

AES plans to sell $3.5 billion of assets to fund its renewable energy buildout and capital investment plans at its utilities. The sales will come from coal assets, selling down its current renewable energy portfolio, exiting noncore business, and monetization of its technology portfolio.

We view AES’ focus on its core businesses positively. Management also noted a 100-basis-point move in interest rates would have only a $0.03 to $0.04 EPS impact in 2025, suggesting management has done a good job hedging its interest rate exposure.

AES continues to be well positioned for hydrogen investments. The Department of Energy recently awarded grants totaling $2.4 billion for two green hydrogen hubs in which AES is participating. While we don’t include hydrogen in our near-term estimates, it could be a meaningful long-term growth area for AES. The company earlier announced plans to build a green hydrogen project with AirProducts.