Stock Analysis & Valuation The AES Corporation (0H6G.L)

• Previous Close: £14.67
• Sector Valuation Confidence Level: Moderate

Valuation method	Value, £	Upside, %
Artificial intelligence (AI)	14.20	-3
Intrinsic value (DCF)	4.70	-68
Graham-Dodd Method	5.80	-60
Graham Formula	9.60	-35

Strategic Investment Analysis

Company Overview

The AES Corporation (LSE: 0H6G.L) is a leading diversified power generation and utility company headquartered in Arlington, Virginia. Operating across the Americas, Europe, and Asia, AES owns and operates a robust portfolio of approximately 31,459 megawatts of power generation capacity, utilizing a mix of traditional fuels (coal, gas) and renewable sources (wind, solar, hydro, biomass, and energy storage). The company serves a broad customer base, including utilities, industrial users, and residential consumers, through wholesale and retail electricity markets. AES is strategically positioned in the global energy transition, with significant investments in renewables and energy storage, aligning with increasing demand for sustainable energy solutions. Its diversified geographic footprint mitigates regional risks while capitalizing on growth in emerging markets. AES's integrated utility operations further enhance revenue stability, making it a key player in the utilities sector.

Investment Summary

The AES Corporation presents a compelling investment case with its diversified energy portfolio and strong focus on renewable energy expansion. The company's $12.3 billion revenue and $1.7 billion net income (FY 2024) reflect operational resilience, though high total debt ($29.4 billion) and substantial capital expenditures ($7.4 billion) warrant caution. AES's beta of 0.938 suggests moderate volatility relative to the market, appealing to risk-averse investors. The dividend yield (~1.5%) is modest but stable. Growth prospects are bolstered by its renewables pipeline, particularly in Latin America and the U.S., but regulatory risks in emerging markets and exposure to commodity price fluctuations remain key challenges. Investors should weigh its transition strategy against execution risks and leverage.

Competitive Analysis

AES competes in the global utilities sector with a unique blend of traditional and renewable energy assets, differentiating itself through geographic diversification and a growing renewables footprint. Its competitive advantage lies in its scale (31,459 MW capacity) and operational presence in high-growth markets like Brazil and Chile, where energy demand is rising. AES's renewables segment (notably solar and wind) positions it favorably amid decarbonization trends, though it lags behind pure-play renewable firms in market share. The company’s integrated utility model provides stable cash flows, but its heavy debt load (nearly 4x revenue) limits flexibility compared to peers with stronger balance sheets. AES’s reliance on coal in some regions (e.g., Indiana) exposes it to transition risks, while competitors with faster renewable adoption may gain regulatory favor. Its partnerships (e.g., with Siemens Energy in energy storage) enhance technological capabilities, but execution delays or cost overruns could erode margins. Overall, AES is a mid-tier player in renewables but leverages its global footprint to offset regional downturns.

Major Competitors

• NextEra Energy (NEE): NextEra Energy is the world’s largest renewable energy producer, with a dominant position in U.S. wind and solar. Its Florida Power & Light subsidiary provides stable regulated earnings, while its renewable arm (NextEra Energy Resources) outpaces AES in scale and growth. However, its U.S.-centric focus lacks AES’s emerging-market exposure. NextEra’s lower debt-to-equity ratio (0.6x vs. AES’s 1.5x) affords greater financial flexibility.
• Duke Energy (DUK): Duke Energy is a U.S.-regulated utility giant with a slower renewable transition than AES. Its predictable cash flows from regulated operations contrast with AES’s higher-risk international markets. Duke’s larger U.S. customer base (7.8 million vs. AES’s 2.5 million) ensures steady revenue, but its limited renewables portfolio (20 GW vs. AES’s 31 GW) may lag in long-term growth.
• Enel (ENEL.MI): Enel is a global renewables leader with a stronger European footprint and aggressive green investments (60 GW renewables). Its integrated model resembles AES’s, but Enel’s lower debt (1.2x EBITDA vs. AES’s 3.5x) and larger scale (50+ countries) provide superior financial stability. However, AES’s Americas focus offers higher growth potential in Latin America.
• Iberdrola (IBE.MC): Iberdrola is a renewables powerhouse (40 GW capacity) with a strong presence in Europe and Latin America. Its offshore wind investments outpace AES’s capabilities, but AES’s U.S. utility operations provide diversification Iberdrola lacks. Iberdrola’s higher credit rating (A- vs. AES’s BB+) reflects better financial health, though AES’s growth in Brazil/Chile may offer higher returns.
• American Electric Power (AEP): AEP is a U.S.-focused utility with a slower pivot to renewables than AES. Its regulated earnings are more stable, but AES’s international diversification provides growth upside. AEP’s coal-heavy fleet (47% of generation) faces steeper transition costs, whereas AES’s renewables (33% of capacity) are better positioned for decarbonization trends.