AES (AES) Stock Forecast & Price Target

AES has established a robust capital expenditure (capex) plan, recently increasing expectations by approximately 11%, which will enhance its energy infrastructure and facilitate the transition from coal to gas generation in its Petersburg units. The company’s diversified generation portfolio, composed of over 53% renewable energy, positions it well for future growth, projected to capture around 42% of EBITDA by 2027 due to increasing renewable demand and coal exits. Furthermore, with a significant portion of EBITDA derived from regulated utility operations, AES is on track to achieve a ~10% compound annual growth rate in its rate base, bolstering its financial stability and long-term growth prospects.

The negative outlook on AES's stock is primarily driven by several fundamental risks, including the potential failure of new generation projects to achieve the expected returns on equity (ROEs) and the adverse impacts of geopolitical risks. The company faces challenges such as lower recontracting prices, disappointing performance from Fluence and Hydrogen joint ventures, and larger-than-anticipated write-offs from coal divestitures. Additionally, the diminishing favor of gas and LNG assets, combined with poor hydrology affecting its Colombian and Brazilian operations, further compounds concerns regarding AES's future profitability and growth potential.