Tags: AES | stability | growth | share

AES Offers Stability and Growth In a Single Share

Friday, 01 Jun 2012 06:03 PM

By Greg Brown

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AES (AES) is a global utility and power generation stock whose management is specifically focused on fast-growing emerging markets. In that sense, it offers both relative stability and growth in a single share.

AES is global power company which owns a portfolio of electricity generation and distribution businesses on five continents in 27 countries, with total capacity of approximately 44,200 MW and distribution networks serving approximately 12 million customers as of Dec. 31, 2011. The company has has approximately 2,400 MW under construction in eight countries.

AES owns and operates two primary types of businesses: generation and utilities. Its plants burn a broad range of fuels, including coal, diesel, fuel oil, natural gas, biomass and renewable sources such as hydroelectric power, wind and solar.

“Our portfolio combines a presence in stable markets in developed countries with faster growing emerging markets. In addition, our generation portfolio is largely contracted, which reduces the risk related to market prices of electricity and fuel,” AES management said in a recent filing.

“Our goal is to maximize value for our shareholders by growing cash flow and earnings per share and achieving better returns on our investments. We will expand our platforms in our core markets, specifically Brazil, Chile, Colombia and the United States, and will work to develop growth platforms in key markets including Turkey, Poland and the United Kingdom,” they said.

“Over time, by focusing our growth and exiting select non-strategic markets, we expect to narrow our geographic focus to achieve better results with fewer countries.”

AES has a market cap of $9.28 billion in a sector, power producers and energy traders, where the average company size is $1.29 billion. Its trailing 12-month P/E ratio is 16.56 and its five-year projected price-to-earnings-growth (PEG) ratio is 1.70, compared to 5.94 for the sector.

Its projected earnings per share growth for the coming year is 6.35 percent, compared to a sector average of 25.49 percent.

Insulated


Analysts are generally positive on AES, with buy or outperform ratings in from Citigroup Investment Research, UBS, and Standard & Poor’s Equity Research.

“The AES Corporation has business exposure to 27 countries around the globe, which insulates it from any region-specific risk. With a base of fossil fuel plants, the company is predominantly involved in long-term contracts, which do not allow for any rate base growth in the near term for its regulated utilities,” said Zacks Investment Research analysts in a recent note.

“Over the long term, we remain positive on the company and suggest that investors wait for a favorable entry point. We currently maintain our neutral recommendation on the stock with a target price of $13.”

AES next reports on Aug. 2.

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