AES Corp. Extends Repurchase Prog - Analyst Blog

AES Corporation (AES) extended its ongoing stock repurchase program into fiscal 2011. The stock repurchase program of up to $500 million of AES common stock was introduced on July 7, 2010, and was set to expire on December 31, 2010. At the end of the third quarter of 2010, the company had $485 million share repurchase authorization remaining under the plan.

AES Corporation has a strong balance sheet compared to its peers with a low long-term debt-to-capitalization of 62.4% at the end of the first nine months of 2010 (Zacks industry average was 93.2%). The company closed the first nine months of 2010 with cash and cash equivalents of $2.8 billion and short-term investments of $1.6 billion. The company continues to be a strong cash generator, having generated operating cash flows of approximately $986 million in the first nine months of 2010. We expect AES Corporation's strong liquidity to stand in good stead for any earnings accretive acquisitions, investments for organic growth, and for its extended share buyback program.

Arlington, Virginia-based AES Corporation is a global power company that owns and operates electric power generation and distribution businesses in 29 countries. The company's operations are divided into three segments: Regulated Utilities, Contract Generation, and Competitive Supply. The company achieved revenues of $14 billion in 2009 and owns as well as manages $40 billion in total assets.

AES Corporation's businesses are spread across 5 continents in 31 countries, representing a geographically diverse earnings base. Geographic disparity in the target markets of AES Corporation has resulted in a portfolio that is well-positioned for capitalizing on regional differences in power prices and weather-driven demand. This insulates the company from any region specific risk.

By fuel type, AES' capacity portfolio is approximately 41% coal, 39% gas, 16% hydro and 4% oil. Revenues are earned equally from generation and distribution, and almost 80% of generation revenues are under long-term contracts.

AES Corporation's focus on long-term supply contracts exposes it to commodity price risk. The company would be unable to pass on any escalation in prices of coal and natural gas to its customers. Profitability at its regulated utilities depends on the regular rate relief around the globe from their service countries.

Also the company's substantial generation capacity under construction in emerging countries may face cost escalation and over-runs. The company is locked into fixed earnings by virtue of its long-term delivery contracts for utility projects and is likely to face the impact of cost over-runs.

AES Corporation is a non-dividend paying stock in an industry (utilities and energy merchants) that has a high average dividend yield. Business exposure to 26 countries around the globe insulates AES Corporation from any region-specific risk. With a base of fossil fuel plants, the company is predominantly involved in long-term contracts, which do not allow for any rate base growth in the near term for its regulated utilities. The company is investing a substantial chunk of funds for capacity expansion in the Latin American and Asian markets, looking for growth in these power hungry regions.

Over the long term, we remain positive on the company and advice investors to wait for a favorable entry point. We currently maintain our ‘Neutral' recommendation on the Zacks #3 (Hold) Rank stock. In the near term, AES Corporation's Zacks #2 Rank peers who have a ‘Buy' recommendation like Avista Corporation (AVA) and Black Hills Corporation (BKH) look attractive.

 
AES CORP (AES): Free Stock Analysis Report
 
AVISTA CORP (AVA): Free Stock Analysis Report
 
BLACK HILLS COR (BKH): Free Stock Analysis Report
 
Zacks Investment Research