AES Corp. started with Buy at Jefferies, seeing ‘giant renewables pivot at a discount’

AES Corp. (NYSE:AES) +7.1% in Wednesday’s trading as Jefferies initiates coverage with a Buy rating and $20 price target, seeing the energy infrastructure company as “a way to gain exposure to U.S. renewables with a quality improvement twist at a discounted price.”

AES (AES) owns a large renewable development business, two regulated utilities in the U.S., and liquefied natural gas terminals in the Dominican Republic and Panama, but with most of the growth focused on U.S. Renewables and U.S. Utilities, as well as the full exit from coal which is mainly located internationally, Jefferies analyst Julien Dumoulin-Smith sees the company’s earnings mix increasingly weighted towards the U.S., and the overall earnings quality and business risk profile improving meaningfully by 2027.

The company’s persistent discount to peers has deepened YTD with AES (AES) shares underperforming, which Dumoulin-Smith says does not reflect the strengthening business outlook and the overall quality improvement story.

The company’s outlook has rarely been this strong, the analyst says, but gaining investor confidence in management’s ability to execute is “the key gating item for the stock to re-rate and bridge its discount to peers, including meeting deployment targets, $3.5B of asset sales, and managing the impact of its coal exit on earnings.”