As of July 22, 2023, The AES Corp (AES, Financial) recorded a positive change of 3.02% in its stock price, with each share trading at $22.49. The company, with a market cap of $15.1 billion and sales of $13 billion, is currently considered modestly undervalued according to the GuruFocus Value of $25.9.
The AES, a global power company, boasts a generation portfolio of over 32 gigawatts, including renewable energy (46%), gas (32%), coal (20%), and oil (2%). As of the end of 2022, AES owns and operates six electric utilities, providing power to 2.6 million customers.
The AES: A Closer Look at the Valuation
The AES Corp (AES, Financial) is seen as modestly undervalued based on GuruFocus’ valuation method. The GF Value is a unique measure of a stock’s intrinsic worth, calculated using historical trading multiples, an adjustment factor from GuruFocus based on past performance and growth, and estimates of future business performance. If the stock’s share price is significantly above the GF Value Line, the stock may be overvalued and offer poor future returns. Conversely, if the stock’s share price is significantly below the GF Value Line, the stock may be undervalued and present high future return potential. Given its current price, The AES is considered modestly undervalued.
Given this valuation, it’s plausible that the long-term return of The AES (AES, Financial) stock will exceed its business growth.
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Financial Strength of The AES
Investing in companies with poor financial strength comes with a higher risk of permanent capital loss. Thus, it is crucial to thoroughly review a company’s financial strength before deciding to buy its stock. A great starting point for understanding a company’s financial strength is looking at the cash-to-debt ratio and interest coverage. The AES has a cash-to-debt ratio of 0.09, which is worse than 74.85% of companies in the Utilities – Regulated industry. GuruFocus ranks The AES’s overall financial strength at 3 out of 10, indicating poor financial strength.
Profitability and Growth of The AES
Companies that have consistently been profitable over the long term offer less risk for investors. Higher profit margins usually suggest a better investment compared to a company with lower profit margins. The AES has been profitable 6 out of the past 10 years. Over the past twelve months, the company had a revenue of $13 billion and a Loss Per Share of $-0.82. Its operating margin is 18.47%, which ranks better than 68.2% of companies in the Utilities – Regulated industry. Overall, the profitability of The AES is ranked 6 out of 10, indicating fair profitability.
One of the most crucial factors in a company’s valuation is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of The AES is 7.3%, which ranks worse than 52.59% of companies in the Utilities – Regulated industry. The 3-year average EBITDA growth is -13.6%, which ranks worse than 89.11% of companies in the same industry.
ROIC vs WACC: A Look at The AES’s Profitability
An alternative way to assess a company’s profitability is to compare its return on invested capital (ROIC) and the weighted cost of capital (WACC). The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, the ROIC should be higher than the WACC. For the past 12 months, The AES’s ROIC is 19.51, and its cost of capital is 7.19.
Conclusion
In summary, the stock of The AES (AES, Financial) is considered modestly undervalued. The company’s financial condition is poor, and its profitability is fair. Its growth ranks worse than 89.11% of companies in the Utilities – Regulated industry. To learn more about The AES stock, you can check out its 30-Year Financials here.
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