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Market Price (8/5/2016): $12.23/share; ST-Target: $20/share; NIV: $41/share
AES: Time to turn-up the growth volume
Despite promise of 12%-16% CAGR in AEPS thru 2018, AES is trading as if its growth prospects are next to none. We believe investors are skeptical and cynical and perhaps given up on promise of the future, and we can’t find fault with this argument, given past 15 years. However, we believe AES has turned the corner. From our view, 2016 is bottom and forward prospects look far better than before, AES: 1) is out of many of the riskier or no-growth-prospect countries, 2) has sold or vastly reduced its interests in non-performing plants, riskier businesses, or assets that have no growth potential, 3) has begun accelerating its investment program, 4) significantly reduced parent debt and continues to do so, 5) has businesses in stable countries or in stable regulatory regimes, and 6) even troubled assets such as Maritza in Bulgaria seem to have turned the corner. This isn’t to say there aren’t issues, AES: 1) continues to pay more than a nominal dividend, 2) hasn’t disavowed share buybacks, and 3) stubbornly clings to an inexplicably high investment hurdle rate. Regardless, given its investment program we look for it to overshadow our $20/share ST-Target and march towards our NIV of $41/share in the MT-to-LT.