AES Executes on Renewable Energy Backlog Despite Supply Headwinds

We are reaffirming our $23 per share fair value estimate and stable, no-moat ratings after AES AES reported full-year 2022 adjusted earnings of $1.67 per share compared with $1.52 in 2021, above management’s 2022 EPS guidance range of $1.55-$1.65. Management also reaffirmed its 7%-9% annual earnings growth rate through 2025, from a 2020 base. We expect AES can achieve this growth. The company initiated 2023 EPS guidance of $1.65 to $1.75. We expect the company to achieve the high end of the range.

AES’s renewable energy growth ambitions continue to benefit from the Inflation Reduction Act. Despite supply constraints, AES added 2 gigawatts to its operating portfolio. It has doubled its renewable energy capacity in the U.S. since 2021.

In 2022, the company added 5.2 GW of renewable energy projects to its backlog, which now sits at 12.2 GW. Nearly half the backlog is currently under construction, with most of the additions coming in the back half of 2023. AES expects to commission 3.4 GW during the year. Based on management’s execution of renewable energy projects despite a difficult backdrop in 2022, we expect management to execute on its development plans.

Rate base at AES’ utilities is poised to grow 9%, supported by a constructive distribution rate case outcome and the outcomes of an Electric Security Plan in Ohio and Integrated Resource Plan in Indiana. We think this regulatory support will continue to drive investments in the region.

AES recently announced plans to invest in a green hydrogen production facility in Texas with AirProducts to be completed in 2027. While we don’t expect hydrogen to move the needle in the near term, it could be a meaningful long-term growth area for AES. We think AES has a strong early position in this growing segment.

Results in the quarter benefited from increased LNG sales and increased ownership of AES Andres, partially offset by unplanned outages, higher share count, and higher interest expense.