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Why AES Stock Soared 16.5% in August

By Neha Chamaria – Updated Sep 7, 2020 at 3:27PM

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A strong second quarter wasn't the only reason this utility stock went up.

What happened

Shares of AES (AES 1.41%) jumped 16.5% in August, according to data provided by S&P Global Market Intelligence.

With those gains, the utility stock hugely outperformed the Dow Jones Utility Average index, thanks to better-than-expected earnings numbers and reaffirmation of its 2020 and medium-term guidance despite pandemic disruption. AES' plans to lower power generation from coal are also on track, as its second quarter revealed.

So what

AES beat earnings estimates when it reported its second-quarter numbers on Aug. 6, turning in adjusted earnings per share of $0.25 compared to $0.26 in Q2 2019. The company incurred a loss on a GAAP basis, though, because of one-time charges such as an impairment and a loss on sale of assets.

Solar panels and a wind farm.

Image source: Getty Images.

There were some important takeaways from the earnings report:

  • The company added 852 megawatts to its renewables pipeline during the quarter.
  • It reported total renewables backlog of 6.2 gigawatts (GW).
  • AES agreed to sell 2 GW capacity to reduce coal-powered generation to 34%.
  • It reported energy storage backlog of 1.6 GW for Fluence, its partnership with Siemens.
  • The utility acquired a 18.5% stake in AES Tiete in Brazil to take total ownership to 43% in a bid to strengthen its renewables portfolio.
  • And management expects coal-fired generation to drop below 30% by end of 2020 and below 10% by 2030.

One thing's clear: AES is laser-focused on building its renewable energy business and reducing dependence on coal. It's a hugely positive move that should help drive profits for the company in the coming decades.

Now what

Encouraged by a strong quarter and its ongoing investments in renewable energy, AES reaffirmed its 2020 adjusted EPS guidance range of $1.32 to $1.42 after having lowered its guidance in the first quarter. AES earned adjusted EPS of $1.36 in 2019.

More importantly, the company expects 7% to 9% average annual growth in adjusted EPS through 2022 and is committed to growing its dividend by 4% to 6% annually. With the stock currently yielding 3.3%, AES looks like a promising dividend-growth utility stock.

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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