Intrinsic value of AES - AES

Previous Close

$11.13

  Intrinsic Value

$1.17

stock screener

  Rating & Target

str. sell

-90%

Previous close

$11.13

 
Intrinsic value

$1.17

 
Up/down potential

-90%

 
Rating

str. sell

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 7.3

 

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
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  13,586
  13,858
  14,176
  14,541
  14,950
  15,403
  15,900
  16,442
  17,028
  17,660
  18,337
  19,062
  19,836
  20,660
  21,535
  22,464
  23,449
  24,491
  25,593
  26,757
  27,986
  29,284
  30,652
  32,094
  33,613
  35,213
  36,898
  38,672
  40,538
  42,501
  44,566
Variable operating expenses, $m
 
  12,719
  13,009
  13,340
  13,712
  14,125
  14,577
  15,069
  15,602
  16,177
  16,793
  17,337
  18,040
  18,790
  19,586
  20,431
  21,326
  22,274
  23,276
  24,335
  25,453
  26,633
  27,877
  29,189
  30,571
  32,026
  33,558
  35,171
  36,868
  38,654
  40,532
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
  12,719
  13,009
  13,340
  13,712
  14,125
  14,577
  15,069
  15,602
  16,177
  16,793
  17,337
  18,040
  18,790
  19,586
  20,431
  21,326
  22,274
  23,276
  24,335
  25,453
  26,633
  27,877
  29,189
  30,571
  32,026
  33,558
  35,171
  36,868
  38,654
  40,532
Operating income, $m
  139
  1,139
  1,167
  1,200
  1,237
  1,279
  1,324
  1,373
  1,426
  1,483
  1,544
  1,725
  1,795
  1,870
  1,949
  2,033
  2,122
  2,217
  2,317
  2,422
  2,533
  2,651
  2,774
  2,905
  3,043
  3,187
  3,340
  3,500
  3,669
  3,847
  4,034
EBITDA, $m
  1,315
  2,401
  2,456
  2,519
  2,590
  2,669
  2,755
  2,849
  2,950
  3,059
  3,177
  3,302
  3,437
  3,579
  3,731
  3,892
  4,062
  4,243
  4,434
  4,636
  4,849
  5,073
  5,310
  5,560
  5,823
  6,101
  6,393
  6,700
  7,023
  7,363
  7,721
Interest expense (income), $m
  1,273
  1,207
  1,159
  1,204
  1,256
  1,314
  1,379
  1,449
  1,526
  1,609
  1,699
  1,796
  1,899
  2,008
  2,126
  2,250
  2,382
  2,522
  2,670
  2,827
  2,992
  3,167
  3,351
  3,545
  3,750
  3,966
  4,194
  4,433
  4,685
  4,950
  5,229
Earnings before tax, $m
  137
  -68
  9
  -4
  -19
  -36
  -55
  -77
  -101
  -127
  -155
  -70
  -103
  -138
  -176
  -217
  -259
  -305
  -353
  -405
  -459
  -516
  -577
  -640
  -708
  -779
  -854
  -933
  -1,016
  -1,103
  -1,195
Tax expense, $m
  -188
  0
  2
  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
  -68
  6
  -4
  -19
  -36
  -55
  -77
  -101
  -127
  -155
  -70
  -103
  -138
  -176
  -217
  -259
  -305
  -353
  -405
  -459
  -516
  -577
  -640
  -708
  -779
  -854
  -933
  -1,016
  -1,103
  -1,195

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
  34,731
  35,530
  36,443
  37,468
  38,604
  39,850
  41,208
  42,677
  44,259
  45,958
  47,775
  49,714
  51,779
  53,973
  56,301
  58,768
  61,380
  64,142
  67,060
  70,141
  73,393
  76,821
  80,435
  84,243
  88,254
  92,477
  96,921
  101,598
  106,519
  111,694
Adjusted assets (=assets-cash), $m
  34,016
  34,731
  35,530
  36,443
  37,468
  38,604
  39,850
  41,208
  42,677
  44,259
  45,958
  47,775
  49,714
  51,779
  53,973
  56,301
  58,768
  61,380
  64,142
  67,060
  70,141
  73,393
  76,821
  80,435
  84,243
  88,254
  92,477
  96,921
  101,598
  106,519
  111,694
Revenue / Adjusted assets
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
Average production assets, $m
  24,278
  24,764
  25,333
  25,984
  26,715
  27,525
  28,414
  29,382
  30,429
  31,558
  32,769
  34,064
  35,447
  36,919
  38,483
  40,143
  41,903
  43,765
  45,734
  47,815
  50,012
  52,330
  54,775
  57,352
  60,067
  62,926
  65,937
  69,106
  72,441
  75,949
  79,639
Working capital, $m
  1,139
  346
  354
  364
  374
  385
  398
  411
  426
  441
  458
  477
  496
  516
  538
  562
  586
  612
  640
  669
  700
  732
  766
  802
  840
  880
  922
  967
  1,013
  1,063
  1,114
Total debt, $m
  20,463
  18,396
  19,115
  19,937
  20,859
  21,882
  23,003
  24,225
  25,547
  26,972
  28,500
  30,136
  31,881
  33,739
  35,713
  37,809
  40,029
  42,380
  44,866
  47,492
  50,265
  53,191
  56,277
  59,530
  62,957
  66,567
  70,367
  74,367
  78,576
  83,005
  87,663
Total liabilities, $m
  33,325
  31,258
  31,977
  32,799
  33,721
  34,744
  35,865
  37,087
  38,409
  39,834
  41,362
  42,998
  44,743
  46,601
  48,575
  50,671
  52,891
  55,242
  57,728
  60,354
  63,127
  66,053
  69,139
  72,392
  75,819
  79,429
  83,229
  87,229
  91,438
  95,867
  100,525
Total equity, $m
  2,794
  3,473
  3,553
  3,644
  3,747
  3,860
  3,985
  4,121
  4,268
  4,426
  4,596
  4,778
  4,971
  5,178
  5,397
  5,630
  5,877
  6,138
  6,414
  6,706
  7,014
  7,339
  7,682
  8,044
  8,424
  8,825
  9,248
  9,692
  10,160
  10,652
  11,169
Total liabilities and equity, $m
  36,119
  34,731
  35,530
  36,443
  37,468
  38,604
  39,850
  41,208
  42,677
  44,260
  45,958
  47,776
  49,714
  51,779
  53,972
  56,301
  58,768
  61,380
  64,142
  67,060
  70,141
  73,392
  76,821
  80,436
  84,243
  88,254
  92,477
  96,921
  101,598
  106,519
  111,694
Debt-to-equity ratio
  7.324
  5.300
  5.380
  5.470
  5.570
  5.670
  5.770
  5.880
  5.990
  6.090
  6.200
  6.310
  6.410
  6.520
  6.620
  6.720
  6.810
  6.900
  6.990
  7.080
  7.170
  7.250
  7.330
  7.400
  7.470
  7.540
  7.610
  7.670
  7.730
  7.790
  7.850
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
  -68
  6
  -4
  -19
  -36
  -55
  -77
  -101
  -127
  -155
  -70
  -103
  -138
  -176
  -217
  -259
  -305
  -353
  -405
  -459
  -516
  -577
  -640
  -708
  -779
  -854
  -933
  -1,016
  -1,103
  -1,195
Depreciation, amort., depletion, $m
  1,176
  1,262
  1,289
  1,319
  1,353
  1,390
  1,431
  1,476
  1,524
  1,577
  1,633
  1,577
  1,641
  1,709
  1,782
  1,858
  1,940
  2,026
  2,117
  2,214
  2,315
  2,423
  2,536
  2,655
  2,781
  2,913
  3,053
  3,199
  3,354
  3,516
  3,687
Funds from operations, $m
  3,446
  1,194
  1,295
  1,315
  1,334
  1,354
  1,376
  1,399
  1,424
  1,450
  1,478
  1,507
  1,538
  1,571
  1,605
  1,642
  1,680
  1,721
  1,764
  1,809
  1,857
  1,907
  1,959
  2,015
  2,073
  2,134
  2,199
  2,267
  2,338
  2,413
  2,492
Change in working capital, $m
  552
  7
  8
  9
  10
  11
  12
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
Cash from operations, $m
  2,894
  1,187
  1,287
  1,306
  1,324
  1,343
  1,364
  1,386
  1,409
  1,434
  1,461
  1,489
  1,519
  1,550
  1,583
  1,619
  1,656
  1,695
  1,736
  1,780
  1,826
  1,874
  1,925
  1,979
  2,035
  2,094
  2,157
  2,222
  2,291
  2,364
  2,440
Maintenance CAPEX, $m
  0
  -1,124
  -1,146
  -1,173
  -1,203
  -1,237
  -1,274
  -1,315
  -1,360
  -1,409
  -1,461
  -1,517
  -1,577
  -1,641
  -1,709
  -1,782
  -1,858
  -1,940
  -2,026
  -2,117
  -2,214
  -2,315
  -2,423
  -2,536
  -2,655
  -2,781
  -2,913
  -3,053
  -3,199
  -3,354
  -3,516
New CAPEX, $m
  -2,345
  -486
  -570
  -651
  -731
  -810
  -889
  -968
  -1,047
  -1,128
  -1,211
  -1,296
  -1,383
  -1,472
  -1,564
  -1,660
  -1,759
  -1,862
  -1,969
  -2,081
  -2,197
  -2,318
  -2,445
  -2,577
  -2,715
  -2,860
  -3,011
  -3,169
  -3,335
  -3,508
  -3,690
Cash from investing activities, $m
  -2,108
  -1,610
  -1,716
  -1,824
  -1,934
  -2,047
  -2,163
  -2,283
  -2,407
  -2,537
  -2,672
  -2,813
  -2,960
  -3,113
  -3,273
  -3,442
  -3,617
  -3,802
  -3,995
  -4,198
  -4,411
  -4,633
  -4,868
  -5,113
  -5,370
  -5,641
  -5,924
  -6,222
  -6,534
  -6,862
  -7,206
Free cash flow, $m
  786
  -423
  -429
  -518
  -610
  -704
  -799
  -897
  -999
  -1,103
  -1,211
  -1,324
  -1,441
  -1,563
  -1,690
  -1,823
  -1,962
  -2,107
  -2,259
  -2,418
  -2,585
  -2,759
  -2,942
  -3,134
  -3,335
  -3,546
  -3,767
  -3,999
  -4,243
  -4,498
  -4,766
Issuance/(repayment) of debt, $m
  36
  -764
  719
  822
  923
  1,022
  1,122
  1,221
  1,322
  1,424
  1,529
  1,635
  1,745
  1,858
  1,975
  2,095
  2,221
  2,351
  2,486
  2,626
  2,773
  2,926
  3,086
  3,253
  3,427
  3,610
  3,800
  4,000
  4,209
  4,428
  4,658
Issuance/(repurchase) of shares, $m
  -79
  1,548
  74
  95
  121
  149
  180
  212
  247
  285
  325
  252
  297
  345
  396
  449
  506
  566
  630
  696
  767
  841
  919
  1,002
  1,089
  1,180
  1,276
  1,377
  1,484
  1,595
  1,713
Cash from financing (excl. dividends), $m  
  -457
  784
  793
  917
  1,044
  1,171
  1,302
  1,433
  1,569
  1,709
  1,854
  1,887
  2,042
  2,203
  2,371
  2,544
  2,727
  2,917
  3,116
  3,322
  3,540
  3,767
  4,005
  4,255
  4,516
  4,790
  5,076
  5,377
  5,693
  6,023
  6,371
Total cash flow (excl. dividends), $m
  338
  361
  363
  399
  434
  468
  502
  536
  571
  606
  642
  563
  601
  640
  680
  722
  765
  810
  856
  905
  955
  1,008
  1,063
  1,120
  1,181
  1,243
  1,309
  1,378
  1,450
  1,525
  1,604
Retained Cash Flow (-), $m
  355
  -1,548
  -80
  -95
  -121
  -149
  -180
  -212
  -247
  -285
  -325
  -252
  -297
  -345
  -396
  -449
  -506
  -566
  -630
  -696
  -767
  -841
  -919
  -1,002
  -1,089
  -1,180
  -1,276
  -1,377
  -1,484
  -1,595
  -1,713
Prev. year cash balance distribution, $m
 
  800
  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
 
  -387
  283
  304
  312
  319
  322
  324
  324
  321
  317
  312
  304
  295
  285
  272
  259
  243
  227
  208
  188
  167
  144
  119
  92
  63
  33
  1
  -34
  -70
  -108
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
 
  -347
  225
  212
  189
  165
  141
  118
  97
  77
  61
  46
  35
  25
  18
  12
  8
  5
  3
  2
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  77.2
  76.6
  75.8
  74.9
  73.8
  72.5
  71.0
  69.5
  67.7
  65.9
  64.6
  63.1
  61.4
  59.7
  57.9
  56.0
  54.0
  52.0
  49.9
  47.8
  45.7
  43.7
  41.6
  39.6
  37.6
  35.6
  33.7
  31.8
  30.1
  28.3

The AES Corporation is a holding company. The Company, through its subsidiaries and affiliates, operates a diversified portfolio of electricity generation and distribution businesses. It is organized into six strategic business units (SBUs): the United States; Andes; Brazil; Mexico, Central America and the Caribbean (MCAC); Europe, and Asia. As of December 31, 2016, its United States SBU had 18 generation facilities and two integrated utilities in the United States. As of December 31, 2016, its Andes SBU had generation facilities in three countries. Its Brazil SBU has generation and distribution businesses, Eletropaulo and Tiete. As of December 31, 2016, its MCAC SBU had a portfolio of distribution businesses and generation facilities, including renewable energy, in five countries. As of December 31, 2016, its Europe SBU had generation facilities in five countries. As of December 31, 2016, its Asia SBU had generation facilities in three countries.

FINANCIAL RATIOS  of  AES (AES)

Valuation Ratios
P/E Ratio -6.4
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 2% 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 660.377 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 $7.3 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

▶ 3 Dividend Stocks Ideal for Retirees   [06:00AM  Motley Fool]
▶ AES Announces Quarterly Dividend   [Oct-13-17 08:00AM  Business Wire]
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▶ EU mergers and takeovers (Oct 9)   [Oct-09-17 11:59AM  Reuters]
▶ EU mergers and takeovers (Oct 6)   [Oct-06-17 08:50AM  Reuters]
▶ ETFs with exposure to The AES Corp. : October 3, 2017   [Oct-03-17 10:49AM  Capital Cube]
▶ This Week in Solar   [Sep-29-17 06:49PM  Motley Fool]
▶ 4 Utilities Betting Billions on Renewable Energy   [Sep-28-17 07:16AM  Motley Fool]
▶ ETFs with exposure to The AES Corp. : September 18, 2017   [Sep-18-17 05:19PM  Capital Cube]
▶ ETFs with exposure to The AES Corp. : September 7, 2017   [Sep-07-17 12:09PM  Capital Cube]
▶ The AES Corp. Value Analysis (NYSE:AES) : August 21, 2017   [Aug-21-17 05:41PM  Capital Cube]
▶ [$$] 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]
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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