AES 4Q2015 Earnings Note

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Auvila_AES_Note_2015_4Q_Earnings_2016_02_24

Excerpt:

Market Price (2/24/2016): $10.03/share; ST-Target: $17/share; NIV: $44/share

AES: Time to turn-up the growth volume

Finally, it feels like AES is turning the corner from restructuring-and-stagnant Street to growth-and-prosperity Boulevard, but investors to hold their breath for 2016. Much is likely to depend on global economic environment, which appear to be on shaky footing. We’d like AES to stop wasting money on share repurchases, and dedicate more of its efforts on reducing recourse debt. We believe that AES should lower its risk premium across the board when evaluating investments in an effort to boost investments and AEPS CAGR. In concert with lower recourse debt, we believe this to be a prudent strategy, something that could have been started in 2014 before all of the capital wasted on share repurchases. Also, at least, we’d encourage AES to drastically reduce the dividend, if not eliminate it, and use it for equity portion of investments. We’d encourage AES to rid itself of US T&D in exchange for generation assets, and look to expand its core competencies in global generation, especially in Brazil, and in general, any free-market country, which demonstrates distress asset valuations. We also look for AES’ success in Mexico through participation in Mexico’s restructuring of its state-owned electric utility.

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