The AES Corp (AES, Financial) has recently experienced a daily loss of 5.11%, yet it maintains a 3-month gain of 10.64%. Despite reporting a Loss Per Share of $0.88, the stock is currently considered modestly undervalued according to the GF Value. The question many investors are asking is whether this valuation is justified. The following analysis aims to shed light on The AES's current market position and its potential for future growth.
Company Introduction
The AES Corp, a global power company, boasts a diverse generation portfolio with over 32 gigawatts of capacity, including 46% renewable energy sources. As of year-end 2022, The AES operates six electric utilities, distributing power to 2.6 million customers. With a current stock price of $18.37 and a market cap of $12.30 billion, The AES's valuation is a point of interest for investors, especially when compared to the GF Value's fair value estimate of $24.46.
Summarize GF Value
The GF Value is a unique measure of intrinsic value, taking into account historical trading multiples, a GuruFocus adjustment factor, and anticipated future business performance. When a stock's price significantly deviates from the GF Value Line, it suggests an overvaluation or undervaluation. The AES's current price of $18.37, against a GF Value of $24.46, implies that the stock is modestly undervalued. This suggests that The AES's long-term stock return could outpace its business growth.
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Financial Strength
Before investing in a stock, assessing the company's financial strength is crucial. The AES's cash-to-debt ratio of 0.08 is lower than 77.29% of its industry peers, reflecting a weaker financial position. With an overall financial strength rating of 3 out of 10, The AES's financial health is a concern for investors.
Profitability and Growth
Investing in profitable companies is generally less risky, especially when the profitability has been consistent over time. The AES has been profitable for 6 out of the past 10 years, with revenues of $12.80 billion in the last 12 months. Although it reported a Loss Per Share of $0.88, The AES's operating margin of 18.33% is better than 65.28% of its industry counterparts, earning it a fair profitability rank.
However, growth is a critical factor in a company's valuation. The AES's 3-year average annual revenue growth rate of 7.3% is below the industry median, and its EBITDA growth rate of -13.6% ranks lower than 89.28% of its industry peers, indicating potential concerns regarding its growth trajectory.
ROIC vs WACC
Comparing Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) is another way to gauge profitability. The AES's ROIC of 14.81 is notably higher than its WACC of 7.26, indicating that the company is generating value for its shareholders.
Conclusion
Overall, The AES Corp (AES, Financial) appears to be modestly undervalued with a fair level of profitability. However, its financial condition is poor, and its growth ranks unfavorably compared to industry peers. To gain a deeper understanding of The AES's financials, one can explore 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.
