AES focuses on the expansion of renewable energy sources and falling wholesale prices

AES Corporation AES is focused on increasing renewable energy generation by regularly adding solar, wind and battery storage to meet long-term clean energy goals. The company is also committed to reducing its carbon footprint by retiring coal-fired units.

However, the Zacks Rank #3 (Hold) company faces risks, such as declining wholesale prices and an unfavorable financial position, that are working against it.

Tailwinds

Like other utility providers, AES Corp. is expanding its renewable energy generation portfolio to benefit from the growing clean energy market. In the first quarter of 2024, it completed the construction or purchase of 593 megawatts (MW) of renewable energy and energy storage. It has signed long-term contracts for 1.2 GW, thus increasing its backlog to 12.7 GW as of March 31, 2024.

To promote the adoption of clean energy, AES Corp. is rapidly retiring its coal-fired units, reducing the carbon footprint of its portfolio. In 2023, the company completed or announced the sale or closure of 2.1 GW of coal-fired power plants in Vietnam, the United States, and Chile.

AES Corp. is also focused on expanding into the liquefied natural gas (LNG) market, operating the only LNG import terminal in the Dominican Republic, Andres, with a storage capacity of 160,000 cubic meters. The company has long-term contracts to sell LNG regasification to industrial users and third-party power plants, capturing demand from industrial and commercial customers.

Headwinds

Wholesale electricity costs have fallen dramatically in recent years as a result of the growing use of renewable energy sources, cheap natural gas and demand management. In addition, in many areas, new renewable power purchase agreements have been awarded at significantly lower costs than those awarded several years earlier. This downward trend in wholesale prices is expected to continue, which could have a significant negative impact on AES’s financial results.

AES Corp. it had long-term debt of $25.37 billion as of March 31, 2024, which was increasing sequentially. Its current debt, worth $4.23 billion as of March 31, 2024, also increased sequentially. The company’s cash equivalents, worth $2.75 billion as of March 31, 2024, remained significantly lower than its long-term and current debt levels. This means that AES Corp. has poor solvency.

Stocks to consider

Some companies in the same industry have a better position in the rankings CenterPoint Energy C.N.P., IDACORP limited liability company IDA and Consolidated Edison ED, each of them currently sporting a Zacks Rank #2 (Buy). You can see see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CenterPoint Energy’s long-term earnings growth rate (three to five years) is 7%. The Zacks Consensus Estimate for the company’s 2024 sales is projecting an improvement of 1% from the prior-year figure.

IDACORP has delivered an average earnings surprise of 6.81% over the trailing four quarters. The Zacks Consensus Estimate for IDA’s 2024 sales suggests a 1.1% improvement from the prior-year period.

Edison’s consolidated long-term earnings growth rate is 7.4%. The Zacks Consensus Estimate for ED’s 2024 sales indicates a 3.1% improvement from the prior year.

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