Intrinsic value of AES - AES

Previous Close

$11.18

  Intrinsic Value

$2.56

stock screener

  Rating & Target

str. sell

-77%

  Value-price divergence*

-79%

Previous close

$11.18

 
Intrinsic value

$2.56

 
Up/down potential

-77%

 
Rating

str. sell

 
Value-price divergence*

-79%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of AES stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 7.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -4.02
  6.80
  6.62
  6.46
  6.31
  6.18
  6.06
  5.96
  5.86
  5.77
  5.70
  5.63
  5.56
  5.51
  5.46
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
  5.09
  5.08
Revenue, $m
  13,586
  14,510
  15,470
  16,469
  17,509
  18,591
  19,718
  20,893
  22,118
  23,395
  24,728
  26,119
  27,573
  29,092
  30,679
  32,340
  34,076
  35,894
  37,796
  39,788
  41,874
  44,060
  46,350
  48,749
  51,264
  53,901
  56,666
  59,565
  62,606
  65,795
  69,140
Variable operating expenses, $m
 
  13,312
  14,186
  15,094
  16,040
  17,024
  18,049
  19,118
  20,231
  21,393
  22,605
  23,755
  25,077
  26,458
  27,902
  29,412
  30,992
  32,645
  34,375
  36,187
  38,084
  40,072
  42,154
  44,337
  46,624
  49,022
  51,537
  54,173
  56,939
  59,839
  62,882
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  13,447
  13,312
  14,186
  15,094
  16,040
  17,024
  18,049
  19,118
  20,231
  21,393
  22,605
  23,755
  25,077
  26,458
  27,902
  29,412
  30,992
  32,645
  34,375
  36,187
  38,084
  40,072
  42,154
  44,337
  46,624
  49,022
  51,537
  54,173
  56,939
  59,839
  62,882
Operating income, $m
  139
  1,198
  1,285
  1,375
  1,469
  1,567
  1,669
  1,775
  1,886
  2,002
  2,123
  2,364
  2,496
  2,633
  2,777
  2,927
  3,084
  3,249
  3,421
  3,601
  3,790
  3,988
  4,195
  4,413
  4,640
  4,879
  5,129
  5,392
  5,667
  5,956
  6,258
EBITDA, $m
  1,315
  2,514
  2,680
  2,853
  3,033
  3,221
  3,416
  3,620
  3,832
  4,053
  4,284
  4,525
  4,777
  5,040
  5,315
  5,603
  5,904
  6,219
  6,548
  6,893
  7,255
  7,633
  8,030
  8,446
  8,881
  9,338
  9,817
  10,320
  10,846
  11,399
  11,978
Interest expense (income), $m
  1,273
  1,289
  1,378
  1,523
  1,673
  1,830
  1,993
  2,163
  2,340
  2,525
  2,718
  2,919
  3,128
  3,348
  3,577
  3,816
  4,066
  4,328
  4,602
  4,889
  5,190
  5,504
  5,834
  6,179
  6,541
  6,920
  7,318
  7,735
  8,172
  8,630
  9,111
Earnings before tax, $m
  137
  -91
  -93
  -148
  -204
  -263
  -324
  -388
  -454
  -523
  -595
  -554
  -633
  -714
  -800
  -889
  -982
  -1,079
  -1,181
  -1,288
  -1,399
  -1,516
  -1,638
  -1,767
  -1,901
  -2,041
  -2,189
  -2,343
  -2,505
  -2,675
  -2,853
Tax expense, $m
  -188
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -1,141
  -91
  -93
  -148
  -204
  -263
  -324
  -388
  -454
  -523
  -595
  -554
  -633
  -714
  -800
  -889
  -982
  -1,079
  -1,181
  -1,288
  -1,399
  -1,516
  -1,638
  -1,767
  -1,901
  -2,041
  -2,189
  -2,343
  -2,505
  -2,675
  -2,853

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,103
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  36,119
  38,590
  41,145
  43,802
  46,567
  49,445
  52,443
  55,567
  58,823
  62,220
  65,765
  69,466
  73,332
  77,371
  81,594
  86,009
  90,629
  95,462
  100,522
  105,820
  111,368
  117,180
  123,270
  129,652
  136,341
  143,354
  150,707
  158,418
  166,505
  174,987
  183,884
Adjusted assets (=assets-cash), $m
  34,016
  38,590
  41,145
  43,802
  46,567
  49,445
  52,443
  55,567
  58,823
  62,220
  65,765
  69,466
  73,332
  77,371
  81,594
  86,009
  90,629
  95,462
  100,522
  105,820
  111,368
  117,180
  123,270
  129,652
  136,341
  143,354
  150,707
  158,418
  166,505
  174,987
  183,884
Revenue / Adjusted assets
  0.399
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
Average production assets, $m
  24,278
  25,929
  27,646
  29,431
  31,289
  33,223
  35,237
  37,336
  39,524
  41,806
  44,188
  46,675
  49,273
  51,987
  54,824
  57,791
  60,894
  64,142
  67,542
  71,102
  74,830
  78,735
  82,827
  87,115
  91,609
  96,321
  101,262
  106,443
  111,876
  117,576
  123,554
Working capital, $m
  1,139
  363
  387
  412
  438
  465
  493
  522
  553
  585
  618
  653
  689
  727
  767
  808
  852
  897
  945
  995
  1,047
  1,101
  1,159
  1,219
  1,282
  1,348
  1,417
  1,489
  1,565
  1,645
  1,729
Total debt, $m
  20,463
  21,869
  24,168
  26,560
  29,048
  31,638
  34,336
  37,148
  40,079
  43,136
  46,327
  49,657
  53,137
  56,772
  60,572
  64,546
  68,704
  73,054
  77,608
  82,376
  87,369
  92,600
  98,081
  103,825
  109,845
  116,157
  122,774
  129,714
  136,992
  144,626
  152,634
Total liabilities, $m
  33,325
  34,731
  37,030
  39,422
  41,910
  44,500
  47,198
  50,010
  52,941
  55,998
  59,189
  62,519
  65,999
  69,634
  73,434
  77,408
  81,566
  85,916
  90,470
  95,238
  100,231
  105,462
  110,943
  116,687
  122,707
  129,019
  135,636
  142,576
  149,854
  157,488
  165,496
Total equity, $m
  2,794
  3,859
  4,114
  4,380
  4,657
  4,944
  5,244
  5,557
  5,882
  6,222
  6,577
  6,947
  7,333
  7,737
  8,159
  8,601
  9,063
  9,546
  10,052
  10,582
  11,137
  11,718
  12,327
  12,965
  13,634
  14,335
  15,071
  15,842
  16,650
  17,499
  18,388
Total liabilities and equity, $m
  36,119
  38,590
  41,144
  43,802
  46,567
  49,444
  52,442
  55,567
  58,823
  62,220
  65,766
  69,466
  73,332
  77,371
  81,593
  86,009
  90,629
  95,462
  100,522
  105,820
  111,368
  117,180
  123,270
  129,652
  136,341
  143,354
  150,707
  158,418
  166,504
  174,987
  183,884
Debt-to-equity ratio
  7.324
  5.670
  5.870
  6.060
  6.240
  6.400
  6.550
  6.690
  6.810
  6.930
  7.040
  7.150
  7.250
  7.340
  7.420
  7.500
  7.580
  7.650
  7.720
  7.780
  7.850
  7.900
  7.960
  8.010
  8.060
  8.100
  8.150
  8.190
  8.230
  8.260
  8.300
Adjusted equity ratio
  0.020
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -1,141
  -91
  -93
  -148
  -204
  -263
  -324
  -388
  -454
  -523
  -595
  -554
  -633
  -714
  -800
  -889
  -982
  -1,079
  -1,181
  -1,288
  -1,399
  -1,516
  -1,638
  -1,767
  -1,901
  -2,041
  -2,189
  -2,343
  -2,505
  -2,675
  -2,853
Depreciation, amort., depletion, $m
  1,176
  1,316
  1,396
  1,478
  1,564
  1,654
  1,747
  1,844
  1,946
  2,051
  2,161
  2,161
  2,281
  2,407
  2,538
  2,675
  2,819
  2,970
  3,127
  3,292
  3,464
  3,645
  3,835
  4,033
  4,241
  4,459
  4,688
  4,928
  5,179
  5,443
  5,720
Funds from operations, $m
  3,446
  1,225
  1,302
  1,331
  1,360
  1,391
  1,423
  1,456
  1,491
  1,528
  1,566
  1,607
  1,648
  1,692
  1,738
  1,787
  1,837
  1,890
  1,946
  2,004
  2,065
  2,129
  2,196
  2,267
  2,340
  2,418
  2,499
  2,585
  2,674
  2,768
  2,867
Change in working capital, $m
  552
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  40
  42
  43
  45
  48
  50
  52
  55
  57
  60
  63
  66
  69
  72
  76
  80
  84
Cash from operations, $m
  2,894
  1,202
  1,278
  1,306
  1,334
  1,364
  1,395
  1,427
  1,461
  1,496
  1,533
  1,572
  1,612
  1,654
  1,699
  1,745
  1,794
  1,845
  1,898
  1,954
  2,013
  2,074
  2,139
  2,207
  2,278
  2,352
  2,430
  2,512
  2,598
  2,689
  2,783
Maintenance CAPEX, $m
  0
  -1,124
  -1,200
  -1,280
  -1,363
  -1,449
  -1,538
  -1,631
  -1,729
  -1,830
  -1,935
  -2,046
  -2,161
  -2,281
  -2,407
  -2,538
  -2,675
  -2,819
  -2,970
  -3,127
  -3,292
  -3,464
  -3,645
  -3,835
  -4,033
  -4,241
  -4,459
  -4,688
  -4,928
  -5,179
  -5,443
New CAPEX, $m
  -2,345
  -1,651
  -1,717
  -1,785
  -1,858
  -1,934
  -2,014
  -2,099
  -2,188
  -2,282
  -2,382
  -2,487
  -2,597
  -2,714
  -2,837
  -2,967
  -3,104
  -3,248
  -3,400
  -3,560
  -3,728
  -3,905
  -4,092
  -4,288
  -4,495
  -4,712
  -4,941
  -5,181
  -5,434
  -5,699
  -5,978
Cash from investing activities, $m
  -2,108
  -2,775
  -2,917
  -3,065
  -3,221
  -3,383
  -3,552
  -3,730
  -3,917
  -4,112
  -4,317
  -4,533
  -4,758
  -4,995
  -5,244
  -5,505
  -5,779
  -6,067
  -6,370
  -6,687
  -7,020
  -7,369
  -7,737
  -8,123
  -8,528
  -8,953
  -9,400
  -9,869
  -10,362
  -10,878
  -11,421
Free cash flow, $m
  786
  -1,574
  -1,638
  -1,760
  -1,886
  -2,019
  -2,158
  -2,303
  -2,456
  -2,616
  -2,784
  -2,961
  -3,146
  -3,341
  -3,545
  -3,760
  -3,985
  -4,222
  -4,471
  -4,732
  -5,007
  -5,295
  -5,598
  -5,916
  -6,250
  -6,601
  -6,970
  -7,357
  -7,763
  -8,190
  -8,638
Issuance/(repayment) of debt, $m
  36
  1,406
  2,299
  2,391
  2,488
  2,590
  2,698
  2,811
  2,931
  3,057
  3,190
  3,331
  3,479
  3,635
  3,800
  3,974
  4,157
  4,350
  4,554
  4,768
  4,993
  5,231
  5,481
  5,744
  6,020
  6,312
  6,618
  6,940
  7,278
  7,634
  8,008
Issuance/(repurchase) of shares, $m
  -79
  1,156
  349
  413
  481
  551
  624
  700
  780
  863
  950
  924
  1,019
  1,118
  1,222
  1,330
  1,444
  1,563
  1,687
  1,818
  1,954
  2,097
  2,247
  2,405
  2,570
  2,743
  2,924
  3,114
  3,314
  3,523
  3,743
Cash from financing (excl. dividends), $m  
  -457
  2,562
  2,648
  2,804
  2,969
  3,141
  3,322
  3,511
  3,711
  3,920
  4,140
  4,255
  4,498
  4,753
  5,022
  5,304
  5,601
  5,913
  6,241
  6,586
  6,947
  7,328
  7,728
  8,149
  8,590
  9,055
  9,542
  10,054
  10,592
  11,157
  11,751
Total cash flow (excl. dividends), $m
  338
  989
  1,009
  1,045
  1,083
  1,123
  1,164
  1,208
  1,255
  1,304
  1,356
  1,295
  1,352
  1,413
  1,477
  1,545
  1,616
  1,691
  1,770
  1,853
  1,941
  2,033
  2,130
  2,232
  2,340
  2,453
  2,572
  2,697
  2,829
  2,967
  3,112
Retained Cash Flow (-), $m
  355
  -1,156
  -349
  -413
  -481
  -551
  -624
  -700
  -780
  -863
  -950
  -924
  -1,019
  -1,118
  -1,222
  -1,330
  -1,444
  -1,563
  -1,687
  -1,818
  -1,954
  -2,097
  -2,247
  -2,405
  -2,570
  -2,743
  -2,924
  -3,114
  -3,314
  -3,523
  -3,743
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -168
  661
  632
  602
  572
  540
  508
  475
  441
  406
  370
  333
  295
  255
  214
  172
  128
  83
  36
  -13
  -64
  -117
  -172
  -230
  -290
  -352
  -417
  -485
  -556
  -631
Discount rate, %
 
  11.60
  12.18
  12.79
  13.43
  14.10
  14.80
  15.55
  16.32
  17.14
  18.00
  18.90
  19.84
  20.83
  21.87
  22.97
  24.12
  25.32
  26.59
  27.92
  29.31
  30.78
  32.32
  33.93
  35.63
  37.41
  39.28
  41.25
  43.31
  45.47
  47.75
PV of cash for distribution, $m
 
  -150
  525
  440
  364
  296
  236
  185
  142
  106
  78
  55
  38
  25
  16
  10
  5
  3
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  86.8
  84.0
  81.1
  77.9
  74.7
  71.4
  68.1
  64.7
  61.4
  58.2
  55.3
  52.5
  49.7
  47.0
  44.4
  41.8
  39.3
  36.9
  34.6
  32.4
  30.3
  28.3
  26.4
  24.7
  23.0
  21.4
  19.9
  18.4
  17.1
  15.9

The AES Corporation operates as a diversified power generation and utility company. It owns and/or operates power plants to generate and sell power to customers, such as utilities, industrial users, and other intermediaries. The company also owns and/or operates utilities to generate or purchase, distribute, transmit, and sell electricity to end-user customers in the residential, commercial, industrial, and governmental sectors; and generates and sells electricity on the wholesale market. It uses a range of fuels to generate electricity, including hydro, coal/ petroleum coke, oil, gas/diesel, biomass, solar, wind, energy storage, and landfill gas. The company owns and/or operates a generation portfolio of approximately 30,379 megawatts. It has operations in the United States, Chile, Colombia, Argentina, Brazil, Mexico, Central America, the Caribbean, Europe, and Asia. The company was formerly known as Applied Energy Services, Inc. and changed its name to The AES Corporation in April 2000. The AES Corporation was founded in 1981 and is headquartered in Arlington, Virginia.

FINANCIAL RATIOS  of  AES (AES)

Valuation Ratios
P/E Ratio -6.5
Price to Sales 0.5
Price to Book 2.6
Price to Tangible Book
Price to Cash Flow 2.5
Price to Free Cash Flow 13.4
Growth Rates
Sales Growth Rate -4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 1.6%
Cap. Spend. - 3 Yr. Gr. Rate 3.4%
Financial Strength
Quick Ratio 2
Current Ratio 0.3
LT Debt to Equity 685.8%
Total Debt to Equity 732.4%
Interest Coverage 1
Management Effectiveness
Return On Assets 5.2%
Ret/ On Assets - 3 Yr. Avg. 4.1%
Return On Total Capital -4.9%
Ret/ On T. Cap. - 3 Yr. Avg. -0.2%
Return On Equity -38.4%
Return On Equity - 3 Yr. Avg. -4.1%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 17.9%
Gross Margin - 3 Yr. Avg. 18.9%
EBITDA Margin 19%
EBITDA Margin - 3 Yr. Avg. 23.1%
Operating Margin 1%
Oper. Margin - 3 Yr. Avg. 6.3%
Pre-Tax Margin 1%
Pre-Tax Margin - 3 Yr. Avg. 6%
Net Profit Margin -8.4%
Net Profit Margin - 3 Yr. Avg. -0.5%
Effective Tax Rate -137.2%
Eff/ Tax Rate - 3 Yr. Avg. -23.5%
Payout Ratio -25.4%

AES stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AES stock intrinsic value calculation we used $13586 million for the last fiscal year's total revenue generated by AES. The default revenue input number comes from 2016 income statement of AES. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our AES stock valuation model: a) initial revenue growth rate of 6.8% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 11.6%, whose default value for AES is calculated based on our internal credit rating of AES, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of AES.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of AES stock the variable cost ratio is equal to 91.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for AES stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 6.3% for AES.

Corporate tax rate of 27% is the nominal tax rate for AES. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the AES stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for AES are equal to 178.7%.

Life of production assets of 21.6 years is the average useful life of capital assets used in AES operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for AES is equal to 2.5%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $2794 million for AES - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 681.938 million for AES is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of AES at the current share price and the inputted number of shares is $7.6 billion.

Management's discussion and analysis

Consolidated Net Cash Provided by Operating Activities for the year ended December 31, 2016 was $2,884 million, an increase of $750 million compared to the year ended December 31, 2015. The increase was primarily driven by higher collections at the Company’s distribution business in Brazil, Eletropaulo and Sul, and the settlement of overdue receivables at Maritza in Bulgaria. These positive contributions were offset by lower margins across the SBUs (primarily due to lower wholesale prices and lower contributions from regulated customers in the U.S., lower contracted rates in Tietê, the prior year liability reversal in Eletropaulo and unfavorable FX in Kazakhstan), as well as the recovery of overdue receivables in the Dominican Republic in 2015, which benefited 2015 results. Proportional Free Cash Flow (a non-GAAP financial measure) for the year ended December 31, 2016 increased $176 million to $1,417 million compared to the year ended December 31, 2015, primarily due to the same factors as Consolidated Net Cash Provided by Operating Activities.

Overview of 2016 Results

Earnings Per Share and Proportional Free Cash Flow Results in 2016 (in millions, except per share amounts)

 
                       

Years Ended December 31,

2016

 

2015

 

2014

Diluted earnings per share from continuing operations

$

   

$

0.48

   

$

0.97

 

Adjusted earnings per share (a non-GAAP measure) (1)

0.98

   

1.25

   

1.18

 

Net cash provided by operating activities

2,884

   

2,134

   

1,791

 

Proportional Free Cash Flow (a non-GAAP measure) (1) (2)

1,417

   

1,241

   

891

 

_____________________________

   

(1)

See reconciliation and definition under SBU Performance Analysis—Non-GAAP Measures.

   

(2) 

Disclosure of Proportional Free Cash Flow will be discontinued beginning in the first quarter of 2017. See further discussion under SBU Performance Analysis—Non-GAAP Measures.

Diluted earnings per share from continuing operations decreased primarily due to higher impairment expense on long lived assets, lower gains on foreign currency derivatives, lower operating margins at our US, Brazil and Europe SBUs, and lower equity in earnings of affiliates due to the gain earned in 2015 from the restructuring of Guacolda; partially offset by a lower effective tax rate, the absence of goodwill impairment expense in the current year, lower losses on extinguishment of debt and lower share count.

Adjusted EPS, a non-GAAP measure, decreased by 22% to $0.98 primarily driven by lower operating margins at our US, Brazil, and Europe SBUs, lower equity in earnings of affiliates due to the gain earned in 2015 from the restructuring of Guacolda; partially offset by a lower adjusted effective tax rate and lower share count.

Net cash provided by operating activities increased by 35% to $2.9 billion primarily driven by an increase in collections at our Brazil utilities, the collection of overdue receivables at Maritza, and lower costs associated with the fulfillment of our service concession arrangement and lower working capital requirements at Mong Duong. These positive impacts were partially offset by the timing of payments at our Brazil utilities for higher energy purchases made in the prior year, collections of overdue receivables in the prior year in the Dominican Republic, and lower net income adjusted for non-cash items.

Proportional free cash flow, a non-GAAP measure, increased by 14% to $1.4 billion primarily driven by an increase in collections at our Brazil utilities, the collection of overdue receivables at Maritza, and lower working capital requirements at Mong Duong. These positive impacts were partially offset by the timing of payments at our Brazil utilities for higher energy purchases made in the prior year, collections of overdue receivables in the prior year in the Dominican Republic, and a decrease in Adjusted Operating Margin (a non-GAAP measure).

Year Ended December 31, 2016

Consolidated Revenue — Revenue decreased in 2016 compared to 2015 primarily due to:

   

Unfavorable FX impacts of $511 million, primarily in Brazil of $213 million, Argentina of $94 million, Kazakhstan of $63 million and Colombia of $54 million.

   

Brazil due to lower rates for energy sold in Brazil under new contracts at Tietê; operations in 2015 but not in 2016 at Uruguiana; the reversal of a contingent regulatory liability in 2015, and lower demand, partially offset by the annual tariff adjustment at Eletropaulo.

   

Lower pass-through costs at El Salvador and IPP4 in Jordan, the sale of DPLER in January 2016, and lower rates at DPL.

These decreases were partially offset by:

   

The full operations at Mong Duong in 2016 compared to Unit 1 in March 2015 with principal operations commencing in April 2015

   

The commencement of operations at Cochrane in Chile with Unit 1 operational in July 2016 and principal operations in October).

   

Higher environmental returns and new rate case at IPL.

Consolidated Operating Margin — Operating margin decreased in 2016 compared to 2015 primarily due to:

   

Unfavorable FX impacts of $80 million, primarily in Kazakhstan, Argentina, and Colombia.

   

Brazil driven by the revenue drivers above as well as higher fixed costs at Eletropaulo.

These decreases were partially offset by:

   

Higher margin at Gener, impact from full operations at Mong Duong in Vietnam and Cochrane in Chile, and higher margins at IPL as discussed above.

Year Ended December 31, 2015

Consolidated Revenue — Revenue decreased in 2015 compared to 2014 primarily due to:

   

Unfavorable FX impacts of $2.2 billion, mainly in Brazil of $1.8 billion, Colombia of $179 million, and Bulgaria of $74 million.

   

US Utilities due to lower volumes primarily at DPL and outages, milder weather, and lower demand at IPL.

   

Lower prices in the Dominican Republic and El Salvador (primarily resulting from lower pass-through costs).

These decreases were partially offset by:

   

Brazil due to higher tariffs at Eletropaulo (including higher pass-through costs) and the reversal of a contingent regulatory liability at Eletropaulo.

   

Higher capacity prices at DPL.

   

Commencement of principal operations at Mong Duong in April 2015.

Consolidated Operating Margin — Operating margin decreased in 2015 compared to 2014 primarily due to:

   

Unfavorable FX impacts of $362 million, primarily in Brazil of $228 million and Colombia of $83 million.

   

Brazil due to lower demand, lower hydrology, and higher fixed costs.

   

The Dominican Republic due to lower prices and lower availability.

These decreases were partially offset by:

   

Higher tariffs in Brazil as discussed above and lower spot prices on energy purchases at Tietê.

   

Higher generation and lower energy purchases driven by improved hydrological conditions in Panama.

   

Higher prices at Chivor driven by a strong El Niño.

   

Higher availability at Gener and Masinloc.

[Source: Form 10-K dated 2017-02-27]

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COMPANY NEWS

▶ [$$] US solar industry fights threat of new import tariffs   [Aug-13-17 02:07PM  Financial Times]
▶ AES beats 2Q profit forecasts   [Aug-08-17 11:54PM  Associated Press]
▶ AES Breaks Ground on Alamitos Energy Center   [Jul-24-17 02:05PM  Business Wire]
▶ 3 Value Stocks for Smart Investors   [Jul-18-17 06:37PM  Motley Fool]
▶ AES Announces Quarterly Dividend   [Jul-17-17 04:50PM  Business Wire]
▶ Storage Wars: Tesla Just Got a Major Competitor   [Jul-12-17 05:05PM  Motley Fool]
▶ Siemens AG, Arlington's AES form new battery company based in Greater Washington   [Jul-11-17 03:33PM  American City Business Journals]
▶ The AES Corp. Value Analysis (NYSE:AES) : June 29, 2017   [Jun-29-17 03:25PM  Capital Cube]
▶ Understanding AESs Current Chart Indicators   [09:06AM  Market Realist]
▶ Behind AES Corporations Price Targets and Analyst Views   [Jun-27-17 10:37AM  Market Realist]
▶ 3 Dividend Stocks for Daring Investors   [Jun-23-17 09:26AM  Motley Fool]
▶ Regulate This: Worker Safety In Trump's America   [Jun-09-17 12:10PM  Forbes]
▶ Why the Paris climate agreement was a risk factor for one Arlington giant   [Jun-02-17 03:50PM  American City Business Journals]
▶ ETFs with exposure to The AES Corp. : May 25, 2017   [May-25-17 12:34PM  Capital Cube]
▶ ETFs with exposure to The AES Corp. : May 11, 2017   [May-11-17 04:01PM  Capital Cube]
▶ What Can Investors Expect from AES Stock?   [08:56AM  Market Realist]
▶ AES Corporation Reported Higher 1Q17 Earnings   [08:56AM  Market Realist]
▶ Analyzing the Implied Volatility of Utility Stocks   [May-08-17 03:09PM  Market Realist]
▶ AES reports 1Q loss   [06:12AM  Associated Press]
▶ 3 High-Yield Dividend Stocks I'd Buy Right Now   [Apr-29-17 10:13AM  Motley Fool]
▶ Can AES Succeed Where NRG Energy Failed?   [Apr-25-17 08:49AM  Motley Fool]
▶ Why NRGs Implied Volatility Is Rising   [Apr-24-17 01:09PM  Market Realist]
▶ 4 Stocks Are Showing Red Flags -- Here's When to Sell   [Apr-21-17 07:07AM  TheStreet.com]
▶ Houston energy company names new CFO   [03:10PM  American City Business Journals]
▶ The AES Corp. Value Analysis (NYSE:AES) : April 17, 2017   [Apr-17-17 01:20PM  Capital Cube]
▶ AES Announces Quarterly Dividend   [08:00AM  Business Wire]
Stock chart of AES Financial statements of AES
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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