Morningstar

AES Earnings: Strong Second Half Needed To Meet Full-Year Guidance

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Securities In This Article
The AES Corp
(AES)

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.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Andrew Bischof, CFA

Strategist
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Andrew Bischof, CFA, CPA, is a strategist, AM Resources, for Morningstar*. He covers electric, gas and water utilities. He conducts comprehensive research and analysis on his covered companies to provide insights into investment opportunities. He assesses financial statements, competitive advantages, and economic indicators to determine a stock’s intrinsic value. He is a five-time Morningstar Outstanding Research Achievement award winner, which recognizes thought leadership and equity research quality as voted on by senior management.

Before joining Morningstar in 2011, Bischof worked in treasury for Mead Johnson Nutrition. Previously, He was a group audit officer for Bank of America in Chicago, and before that, an auditor for Ernst & Young.

Bischof holds a bachelor’s degree in business administration and accounting and a master’s degree in accounting from the University of Wisconsin. He also holds a master’s degree in business administration, with a concentration in finance, from Indiana University’s Kelley School of Business. Additionally, he holds the Chartered Financial Analyst® and Certified Public Accountant designations.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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