Thursday, October 29, 2009

BAGAKOAA Oct 29 Checkin out AES


 Oct 29 Checkin’ out AES

One of our readers asked AES?  Yeah that was about all they said.  AES?  So assuming all the right stuff, they have good health and disability insurance, they are fully vested in their Company’s 401 K, yada yada.  And they are looking for a 12-18 month window and they are looking far at least a 5% growth, here is what I think about AES.

The AES Corporation (AES) is a global power company. During the year ended December 31, 2008, the Company owned a portfolio of electricity generation and distribution businesses on five continents in 29 countries, with generation capacity totaling approximately 43,000 megawatts (MW) and distribution networks serving over 11 million people. In addition, AES have more than 3,000 MW under construction in 10 countries. The Company operates in two lines of business: generation and utilities. In the generation business, the Company owns and/or operates power plants to generate and sell power to wholesale customers such as utilities and other intermediaries. In the utilities business, the Company owns and/or operates utilities to distribute, transmit and sell electricity to the customers in the residential, commercial, industrial and governmental sectors in a defined service area.

Keeping in mind that the sector and industry drive much, some times more than half the value of a stock, this sector, utility is not pretty right now.  IBD, (Investors Business Daily), rates the sector 164 out of 197 with 1 being the best.

Let’s look at the equity itself.  Up 5% today, but what isn’t.  It is trading at a 14.7 multiple.  Double the industry at that level.  ROE, or how management uses the resources available to it is 13.80% which is not great.  Net margin is 10.1 which is higher than its 5 year average, but lower than the industry avg of 13.8. 

Now for the statements.  Steady top line income growth for the last 5 years, I like that.  The last two quarters are trailing down.  It will be tough (improbable they will surpass 2008 revenues of 16 B.)  Cash from operations are a bit sporadic, not unusual for utilities.  16 B in long tern debt with 2.1b income is not a pretty situation.  I like to see LTD paid out of income in less than 5 years preferable in two years.  I’d have to read the conference call or the sec filing to see if the LTD is operational or financial in nature.  Do they have a lot of notes or preferred out there or are they building infrastructure? 

2010 EPS estimate are at the 1.22 range.  Given that, with their current multiple of 14.7, you are theoretically looking at a $17.93 equity.  Argus, Ned Davis, and Schwab all like the stock.  2010 Price targets are in the 21-23 range.  I have the reports if any want to review them with me.  OK If it were me, I’d look for a more sold utility like FPL, they throw a nice dividend (3.7% yield), can clean up their debt in under a year.  I’d listen to the last conference call on each

Then make a choice.  I do not own either and right now would not recommend either, of the two I prefer FPL.  Hope that helps



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