The recent trading performance of The AES Corp (AES, Financial) shows a daily gain of 3.67%, with a noteworthy three-month gain of 25.44%. With an Earnings Per Share (EPS) of $0.72, an intriguing question arises: Is The AES modestly undervalued? This article delves into the company's valuation to provide clarity on its current market status.
Company Overview
The AES Corp, a global power leader, boasts a generation portfolio exceeding 35 gigawatts as of the end of 2023, diversified across renewable energy (53%), gas (27%), coal (18%), and oil (2%). The company operates six electric utilities, serving over 2.5 million customers. With a current stock price of $21.07 and a market cap of $15 billion, the comparison between its trading price and the GF Value, estimated at $24.1, suggests that The AES may be trading below its fair value.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, incorporating historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. For The AES, the GF Value suggests a fair trading value of $24.1 per share. Currently priced at $21.07, The AES appears modestly undervalued, which may signal a potential for higher future returns compared to its current market performance.
Financial Strength and Risks
Assessing a company's financial strength is crucial to understanding its risk levels. The AES's cash-to-debt ratio stands at 0.08, positioning it lower than 74.1% of its peers in the Utilities - Regulated industry. This low ratio, combined with an overall financial strength rating of 3 out of 10, indicates that The AES's financial health could be better, posing a higher risk of capital loss.
Profitability and Growth Prospects
The AES has maintained profitability over the past decade, with a notable operating margin of 17.9%, outperforming 63.01% of its industry counterparts. However, its growth metrics present a mixed picture. The company's average annual revenue growth rate is 7.2%, which is less competitive within its industry. Moreover, its 3-year average EBITDA growth rate of -2.6% ranks lower than 77.83% of its peers, suggesting potential challenges in sustaining growth.
ROIC vs. WACC Analysis
An effective way to gauge a company's value creation is by comparing its Return on Invested Capital (ROIC) against its Weighted Average Cost of Capital (WACC). The AES's recent ROIC of -2.77 falls below its WACC of 4.03, indicating it may not be generating adequate returns on its investments, which could impact long-term shareholder value.
Conclusion
In summary, while The AES (AES, Financial) is currently priced below its GF Value, suggesting it is modestly undervalued, potential investors should consider the company's weak financial strength, mixed profitability, and growth challenges. For a deeper dive into The AES's financials, visit its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
