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On Tuesday, BofA Securities updated its stance on AES Corp. (NYSE: NYSE:AES), elevating the energy company’s stock rating from Underperform to Neutral. Alongside the upgrade, the firm also increased the price target for AES shares from $11.00 to $13.00, signaling a shift in its outlook on the company’s financial prospects. Currently trading at $11.19, AES shows signs of being undervalued according to InvestingPro analysis, with shares trading at a modest P/E ratio of 4.9x.
The revised rating by BofA Securities comes as a result of AES Corp.’s recent strategic adjustments, which are expected to enhance the company’s execution visibility. Stifel analysts highlighted AES’s new plan that includes a more disciplined approach to capital management. The company intends to reduce its capital spending by $1.3 billion, concentrate on investments with higher returns, and cut costs by $300 million. These measures are crucial given the company’s significant debt burden, with a debt-to-equity ratio of 8.21x. InvestingPro subscribers can access detailed analysis of AES’s financial health metrics and 10+ additional exclusive insights.
These strategic measures are anticipated to make AES’s target of a 5-7% EBITDA compound annual growth rate (CAGR) through 2027 more achievable. This is an improvement compared to the previous estimate of a 4% CAGR. The analysts believe that the company’s focus on these areas will support its earnings growth, bolstered by an 11% growth in the U.S. utilities rate base. The company’s current EBITDA stands at $3.29 billion, while maintaining an attractive dividend yield of 6.29% with a 13-year track record of consecutive dividend increases.
However, BofA Securities also cautioned that despite the positive developments, AES still faces potential challenges. Funding constraints and the risk of a future equity raise are seen as limiting factors to the company’s overall growth potential. These concerns are reflected in the analyst’s cautious stance, despite the improved outlook.
The new price target of $13.00 represents BofA Securities’ revised expectation for AES stock’s performance, taking into account the company’s strategic changes aimed at improving financial outcomes. The upgrade to a Neutral rating indicates that the firm now views AES shares as a more balanced investment opportunity, with risks and potential returns more evenly aligned.
In other recent news, AES Corporation reported its fourth-quarter 2024 earnings, revealing an earnings per share (EPS) of $0.54, which surpassed the forecast of $0.4386. However, the company’s revenue of $2.96 billion fell short of the anticipated $3.11 billion. Despite the revenue miss, AES announced a 2025 guidance with an adjusted EPS range of $2.10 to $2.26, indicating plans for significant growth in its renewables segment. In a strategic move, AES decided to halt dividend growth and identified $300 million in cost savings, while reducing renewable energy capital expenditures by $1.3 billion. Mizuho (NYSE:MFG) Securities adjusted its financial outlook for AES, lowering the price target from $16.00 to $15.00 but maintaining an Outperform rating. Meanwhile, Seaport Global Securities downgraded AES stock from Neutral to Sell, setting a price target of $7.00, citing concerns over AES’s ability to meet its 2027 EBITDA targets. These developments reflect ongoing strategic shifts and financial evaluations within AES Corporation.
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