AES Sells 17% Stake, Exits Distribution Business In Brazil

The AES Corporation (NYSE:AES) announced that it has completed the sale of its 17% equity stake in Eletropaulo, the company’s utility unit in Brazil. The transaction came in at a total consideration of BRL 1.27 billion ($310 million approximately) and the proceeds are expected to be used for lower outstanding debts of the parent company within next 60 days.

Reason for Sell-Off

During the first half of 2016, the company had decided to undertake a strategic move to decrease its exposure to Brazilian utility distribution market. Last November, the company converted its preferred stock stake in Eletropaulo to equity share with 17% holding interest.

The Brazilian distribution business has been persistently suffering loss for the past three years. As of 31 Dec, 2017, the company reported an after-tax loss of $611 million on deconsolidation. Of the total loss, $455 million was on account of cumulative translation loss and $243 million related to pension loss.

AES’ Focus on Renewable

With the strategic move of selling its interest in Eletropaulo, the company exited the electric distribution business in Brazil. It is now poised to focus on the growing need for renewables and looking forward to bring in new technologies such as, energy storage, digitalization and drone applications to the Brazilian electric sector.

As of May 8, 2018, the company had a generation mix consisting of 37% gas, 32% coal, 27% renewable and 4% oil, diesel & pet coke. In addition, the company had a gross megawatt (MW) in operation of 33,965 MW.

The company is rapidly expanding its renewable footprint in overseas. In this context, the company’s subsidiary, AES Gener, entered into a new contract during the first quarter of 2018 with Strabag for its Chile-based Alto Maipo hydroelectric project.

Also, due to increased electricity tariff by the Argentinian government, the company evaluates this transaction as an opportunity and is looking forward to take advantage of the same by expanding renewable energy in the country. Moreover, AES Argentina agreed to acquire a 100 MW wind development project with 20 years of U.S. dollar-denominated Power Purchase Agreement. The company expects to see more such contracts in days ahead.

Importance of Renewable

Renewable Energy source has been gaining momentum globally. Wind and solar power have been two of the fastest growing sources of electricity generation on the international front over the past decade. In 2017, global installed wind capacity grew by nearly 11%, thus bringing the global total to 540 GW. Projections by the International Energy Agency indicate that renewable energy will continue to grow at a faster rate than fossil fuels over the next two decades.

Per U.S. Energy Information Administration report, during the 2014-2017 time period, renewable sources accounted for more than 50% of the total utility scale power plant added in the United States. In 2018, 9 GW of new solar and wind assets will be installed, reflecting the rising popularity and importance of renewable resources in the United States.

Price Performance

Shares of AES Corporation have outperformed its industry over the past year. The stock has gained 10.6% versus the 9.3% decline of the industry.

Zacks Rank and Stocks to Consider

AES Corporation has a Zacks Rank #3 (Hold). Some better-ranked stocks in the Zacks Utility – Electric Power Industry are IDACORP, Inc. (NYSE:IDA) , WEC Energy Group, Inc. (NYSE:WEC) and Ameren Corporation (NYSE:AEE) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

IDACORP reported first-quarter 2018 earnings of 72 cents per share, surpassing the Zacks Consensus Estimate of 71 cents by 1.41%. The Zacks Consensus Estimate for 2018 EPS has moved up from $4.18 to $4.19 in the last 60 days.

WEC Energy reported first-quarter 2018 earnings of $1.23 per share, outpacing the Zacks Consensus Estimate of $1.16 by 6.03%. The consensus mark for 2018 EPS has been revised upward from $3.29 to $3.30 in the past 60 days.

Ameren reported first-quarter 2018 earnings of 62 cents per share, exceeding the consensus estimate of 58 cents by 6.90%. The consensus estimate for 2018 EPS has been raised from $3.02 to $3.04 over the past 60 days.

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