On Jun 6, we have issued an updated research report on The AES Corp. (NYSE: AES). The utility operator looks well-positioned for 2014 as its systematic exit from non-core international markets will allow the company to focus on the development of high-return assets. AES Corp. plans to divest additional assets of approximately $500 million to $700 million by 2015.
In addition, rising power demand in the markets of Chile, Central America and Asia will present lucrative growth opportunities for the company. This explains AES Corp.'s utility-scale construction backlog of 4,100 megawatt (NYSE: MW), which includes the 1,320 MW coal-fired OPGC II project in India and the 531 MW hydroelectric project in Chile. AES Corp has several growth-centric programs in its pipeline which are expected to come online in the next five years.
On the flip side, the U.S. government recently announced its plan to curb carbon emissions by 30% from power plants by 2030 from 2005 levels. If implemented, the latest restrictions could prove to be a deterrent for AES Corp's coal-fired generation business.
AES Corp., a Zacks Rank #3 (Hold) stock, posted lackluster earnings results in the first quarter of 2014, falling short of the Zacks Consensus Estimate. On a year-over-year basis, earnings underperformed on account of poor hydrology conditions, lack of gas availability and forced outages.
However, the company's cost-control measures were successful as in the first quarter general and administrative (G&A) expenses dropped 5.6% year over year. AES Corp. further expects to generate G&A and operation & maintenance cost savings of $200 million and $180 million by 2015 and 2018, respectively, which will lend stability to its margins.
Meanwhile, the proposed tax reforms in Chile, expected to be approved in the third quarter of 2014, could see the corporate income tax rate increasing from 20% to 25% in 2017. This might dent the company's long-term profitability.
Key Picks from the Sector
Other better-ranked utility players include Black Hills Corp. (NYSE: BKH), Entergy Corp. (NYSE: ETR) and NRG Energy Inc. (NYSE: NRG). All the above stocks currently carry a Zacks Rank #1 (Strong Buy).
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