Algonquin added to Wells Fargo Tactical Ideas List ahead of potential renewables sale

Algonquin Power (NYSE:AQN) edges lower in Monday’s trading after giving up early-session gains that followed Wells Fargo’s addition of the stock to its Q3 Tactical Ideas List, reiterating its Overweight rating and $8.50 price target while viewing the likely sale of the company’s renewables platform as a potentially meaningful catalyst.

Analyst Neil Kalton says he likes the setup for Algonquin Power (AQN) heading into Q3, a quarter in which investors could finally get clarity on the strategic review of the renewables business.

Kalton says the share price reflects a pessimistic low sales price estimate for the renewables, and believes the platform could fetch ~$2.4B in proceeds, which could be used to recapitalize the company.

All signs point to Algonquin Power (AQN) announcing a sale of the company’s non-regulated renewables assets, potentially in Q3, the analyst says, estimating net proceeds of ~$2.35B, or 10.5x estimated normalized EBITDA of $225M, and believes market conditions have improved for the renewables platform since the process was announced late last year.

Assuming a sale, Algonquin Power (AQN) will become a regulated utility with 90% of the rate base in the U.S. and Canada, and combined with the estimated ~$775M net proceeds from the pending sale of its Atlantic Sustainable stake, Kalton thinks Algonquin will be able to announce a ~$1B stock buyback.