Barclays Expects Ohio Court To Reject AES Corp's Rate Plan

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The Ohio Supreme Court has rejected AES Corp’s AES rate plan. Barclays’ Gregg Orrill maintained an Overweight rating on the company, with a price target of $14.

Impact of Rejection

“Key elements of the DP&L order rejected include the rider mechanism for $110M and a requirement to separate the generation into another subsidiary,” the analyst said.

The Ohio Public Utility Commission is to provide direction on the next steps, which Orrill believes could include filing a case to replace AES Corp.’s rate plan, although refunds are not expected.

“We believe redeploying the $464M in proceeds from the sale of Brazil utility Sul provides a modest offset to the impact. We expect more details on AES Q2 conference call on August 5,” the analyst stated.

Estimates Revised

Management guided to EPS of $0.95-$1.05 for 2016, with 12-16 percent growth ongoing. The company has included the rider in its 2016 guidance, as well a part of it beginning in 2017.

According to the Barclays report, “Intervenor testimony is due in the DP&L electric security plan case July 18 and in the distribution case on August 1.”

The estimates have been revised to reflect the elimination of the DP&L rider mechanism for the rest of 2016, as well as the assumption of 50 percent economics and $/055 per share beginning in 2017, pending the current rate proceedings.

The EPS estimates for 2016, 2017 and 2018 have been lowered.

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Posted In: Analyst ColorLong IdeasAnalyst RatingsTrading IdeasBarclaysGregg Orrill
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