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From the Survey: AES Corporation
AES Corporation (AES) is a major power company, based in Arlington, Virginia. Founded in 1981, the company spent its first five years expanding in the United States before deciding to go global. The company now has various international operations, in countries such as the United Kingdom, Argentina, Pakistan, China, Brazil, and Chile. It has two main businesses: Generation and Utilities. The Generation segment owns and operates power plants to generate and sell power to consumers. The company uses coal, gas, oil, hydroelectric, wind, and solar power to generate electricity. The Utilities segment owns and operates utilities to distribute and sell electricity to end-use customers, such as municipalities, residential consumers, and various businesses.
Recently, AES Corp has started making efforts to further expand its international footprint into Asia and the Middle East. In light of this strategy, the company has entered into a joint venture with Turkey-based Koc Holding, a major power company in the region. We believe that this venture is quite likely to do well as the Turkish power market has a great deal of growth potential. AES Corporation is also entering into various contracts in India, with the most recent ventures being implemented in the states of Rajasthan, Gujarat and Orissa. Given the slowdown in the U.S. economy, the company’s broadening of its horizons appears to be a good decision both in the near term and for the long haul.
The company has also made an effort to diversify its businesses. It is entering into several renewable energy projects, including some in Europe. One of its premier ventures is the Drone Hill project, which should help AES Corp to smoothly transition into the wind market. Given the company’s desire to establish a significant market presence in this sector, future purchases via AES Wind Generation are quite likely. AES Corp is also using its solar subsidiary, AES Solar Energy, to make inroads into the solar energy market, though there are no concrete acquisitions on this front at the moment.
That said, the company is also focusing on its non-renewable segment (coal and oil). In fact, AES recently opened a coal-fired power plant at Galabovo, Bulgaria. The plant cost $1.74 billion, and has an initial capacity of 420 megawatts. When it reaches its full capacity of 600 megawatts, it should account for approximately 9% of Bulgaria’s installed power capacity. The company also has several other projects, including the Maritza East, Angamos, and Changuinola plants, which are slated to come online by the end of this year, to fill out its non-renewable energy portfolio.
Finally, AES is planning several acquisitions, with the most recent being its April definitive agreement to purchase the Dayton Power and Light Company. AES has announced that it will be offering about $1 billion of Senior Notes (due 2021), to help partially pay for the transaction. Other purchases are likely, though nothing definitive is currently known.
Investors should note that the company’s focus on long-term supply contracts exposes it to commodity price risk and its considerable dependence on international revenue makes it vulnerable to foreign currency volatility. Still, AES Corp has solid financials and an eye towards global expansion, factors that augur well for the company in the long term.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.