Intrinsic value of AES - AES

Previous Close

$11.42

  Intrinsic Value

$1.32

stock screener

  Rating & Target

str. sell

-88%

Previous close

$11.42

 
Intrinsic value

$1.32

 
Up/down potential

-88%

 
Rating

str. sell

*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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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
  2.50
  2.75
  2.97
  3.18
  3.36
  3.52
  3.67
  3.80
  3.92
  4.03
  4.13
  4.22
  4.29
  4.36
  4.43
  4.49
  4.54
  4.58
  4.62
  4.66
  4.70
  4.73
  4.75
  4.78
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
Revenue, $m
  13,586
  13,926
  14,309
  14,734
  15,202
  15,713
  16,267
  16,864
  17,506
  18,193
  18,926
  19,707
  20,538
  21,420
  22,355
  23,345
  24,392
  25,498
  26,667
  27,900
  29,201
  30,572
  32,017
  33,539
  35,142
  36,829
  38,605
  40,472
  42,437
  44,504
  46,676
Variable operating expenses, $m
 
  12,781
  13,129
  13,516
  13,942
  14,407
  14,910
  15,453
  16,037
  16,662
  17,329
  17,924
  18,679
  19,481
  20,331
  21,232
  22,184
  23,190
  24,253
  25,375
  26,558
  27,805
  29,119
  30,504
  31,961
  33,496
  35,110
  36,809
  38,596
  40,475
  42,451
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
  12,781
  13,129
  13,516
  13,942
  14,407
  14,910
  15,453
  16,037
  16,662
  17,329
  17,924
  18,679
  19,481
  20,331
  21,232
  22,184
  23,190
  24,253
  25,375
  26,558
  27,805
  29,119
  30,504
  31,961
  33,496
  35,110
  36,809
  38,596
  40,475
  42,451
Operating income, $m
  139
  1,145
  1,179
  1,218
  1,260
  1,307
  1,357
  1,411
  1,469
  1,531
  1,597
  1,784
  1,859
  1,939
  2,023
  2,113
  2,208
  2,308
  2,414
  2,525
  2,643
  2,767
  2,898
  3,036
  3,181
  3,334
  3,494
  3,663
  3,841
  4,028
  4,225
EBITDA, $m
  1,315
  2,413
  2,479
  2,553
  2,634
  2,722
  2,818
  2,922
  3,033
  3,152
  3,279
  3,414
  3,558
  3,711
  3,873
  4,044
  4,226
  4,418
  4,620
  4,834
  5,059
  5,297
  5,547
  5,811
  6,088
  6,381
  6,688
  7,012
  7,352
  7,710
  8,087
Interest expense (income), $m
  1,273
  1,207
  1,169
  1,223
  1,284
  1,350
  1,423
  1,501
  1,586
  1,677
  1,775
  1,879
  1,990
  2,108
  2,234
  2,366
  2,507
  2,656
  2,813
  2,979
  3,154
  3,339
  3,534
  3,740
  3,956
  4,184
  4,423
  4,676
  4,941
  5,220
  5,514
Earnings before tax, $m
  137
  -62
  11
  -5
  -23
  -43
  -66
  -91
  -117
  -146
  -178
  -95
  -131
  -169
  -210
  -253
  -299
  -348
  -399
  -454
  -511
  -572
  -636
  -704
  -775
  -850
  -929
  -1,012
  -1,100
  -1,192
  -1,289
Tax expense, $m
  -188
  0
  3
  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
  -62
  8
  -5
  -23
  -43
  -66
  -91
  -117
  -146
  -178
  -95
  -131
  -169
  -210
  -253
  -299
  -348
  -399
  -454
  -511
  -572
  -636
  -704
  -775
  -850
  -929
  -1,012
  -1,100
  -1,192
  -1,289

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
  34,901
  35,861
  36,928
  38,101
  39,382
  40,769
  42,266
  43,874
  45,596
  47,434
  49,392
  51,474
  53,684
  56,027
  58,508
  61,132
  63,906
  66,835
  69,926
  73,186
  76,623
  80,244
  84,059
  88,076
  92,304
  96,753
  101,435
  106,359
  111,538
  116,983
Adjusted assets (=assets-cash), $m
  34,016
  34,901
  35,861
  36,928
  38,101
  39,382
  40,769
  42,266
  43,874
  45,596
  47,434
  49,392
  51,474
  53,684
  56,027
  58,508
  61,132
  63,906
  66,835
  69,926
  73,186
  76,623
  80,244
  84,059
  88,076
  92,304
  96,753
  101,435
  106,359
  111,538
  116,983
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
  24,885
  25,569
  26,330
  27,167
  28,080
  29,069
  30,136
  31,283
  32,510
  33,821
  35,217
  36,702
  38,278
  39,948
  41,717
  43,588
  45,566
  47,654
  49,858
  52,182
  54,633
  57,215
  59,935
  62,799
  65,814
  68,986
  72,324
  75,835
  79,528
  83,411
Working capital, $m
  1,139
  348
  358
  368
  380
  393
  407
  422
  438
  455
  473
  493
  513
  536
  559
  584
  610
  637
  667
  698
  730
  764
  800
  838
  879
  921
  965
  1,012
  1,061
  1,113
  1,167
Total debt, $m
  20,463
  18,549
  19,413
  20,373
  21,429
  22,581
  23,830
  25,177
  26,625
  28,174
  29,828
  31,591
  33,465
  35,454
  37,563
  39,795
  42,157
  44,653
  47,289
  50,071
  53,005
  56,098
  59,358
  62,791
  66,406
  70,211
  74,216
  78,429
  82,861
  87,522
  92,423
Total liabilities, $m
  33,325
  31,411
  32,275
  33,235
  34,291
  35,443
  36,692
  38,039
  39,487
  41,036
  42,690
  44,453
  46,327
  48,316
  50,425
  52,657
  55,019
  57,515
  60,151
  62,933
  65,867
  68,960
  72,220
  75,653
  79,268
  83,073
  87,078
  91,291
  95,723
  100,384
  105,285
Total equity, $m
  2,794
  3,490
  3,586
  3,693
  3,810
  3,938
  4,077
  4,227
  4,387
  4,560
  4,743
  4,939
  5,147
  5,368
  5,603
  5,851
  6,113
  6,391
  6,683
  6,993
  7,319
  7,662
  8,024
  8,406
  8,808
  9,230
  9,675
  10,143
  10,636
  11,154
  11,698
Total liabilities and equity, $m
  36,119
  34,901
  35,861
  36,928
  38,101
  39,381
  40,769
  42,266
  43,874
  45,596
  47,433
  49,392
  51,474
  53,684
  56,028
  58,508
  61,132
  63,906
  66,834
  69,926
  73,186
  76,622
  80,244
  84,059
  88,076
  92,303
  96,753
  101,434
  106,359
  111,538
  116,983
Debt-to-equity ratio
  7.324
  5.310
  5.410
  5.520
  5.620
  5.730
  5.850
  5.960
  6.070
  6.180
  6.290
  6.400
  6.500
  6.600
  6.700
  6.800
  6.900
  6.990
  7.080
  7.160
  7.240
  7.320
  7.400
  7.470
  7.540
  7.610
  7.670
  7.730
  7.790
  7.850
  7.900
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
  -62
  8
  -5
  -23
  -43
  -66
  -91
  -117
  -146
  -178
  -95
  -131
  -169
  -210
  -253
  -299
  -348
  -399
  -454
  -511
  -572
  -636
  -704
  -775
  -850
  -929
  -1,012
  -1,100
  -1,192
  -1,289
Depreciation, amort., depletion, $m
  1,176
  1,268
  1,299
  1,335
  1,373
  1,416
  1,461
  1,511
  1,564
  1,621
  1,681
  1,630
  1,699
  1,772
  1,849
  1,931
  2,018
  2,110
  2,206
  2,308
  2,416
  2,529
  2,649
  2,775
  2,907
  3,047
  3,194
  3,348
  3,511
  3,682
  3,862
Funds from operations, $m
  3,446
  1,206
  1,307
  1,330
  1,350
  1,372
  1,396
  1,420
  1,447
  1,474
  1,504
  1,535
  1,568
  1,603
  1,639
  1,678
  1,719
  1,762
  1,807
  1,854
  1,905
  1,957
  2,013
  2,071
  2,132
  2,197
  2,265
  2,336
  2,411
  2,490
  2,573
Change in working capital, $m
  552
  8
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  23
  25
  26
  28
  29
  31
  33
  34
  36
  38
  40
  42
  44
  47
  49
  52
  54
Cash from operations, $m
  2,894
  1,197
  1,298
  1,319
  1,339
  1,359
  1,382
  1,405
  1,431
  1,457
  1,486
  1,516
  1,547
  1,581
  1,616
  1,653
  1,693
  1,734
  1,778
  1,824
  1,872
  1,923
  1,977
  2,033
  2,092
  2,155
  2,220
  2,289
  2,362
  2,438
  2,518
Maintenance CAPEX, $m
  0
  -1,124
  -1,152
  -1,184
  -1,219
  -1,258
  -1,300
  -1,346
  -1,395
  -1,448
  -1,505
  -1,566
  -1,630
  -1,699
  -1,772
  -1,849
  -1,931
  -2,018
  -2,110
  -2,206
  -2,308
  -2,416
  -2,529
  -2,649
  -2,775
  -2,907
  -3,047
  -3,194
  -3,348
  -3,511
  -3,682
New CAPEX, $m
  -2,345
  -607
  -684
  -761
  -837
  -913
  -989
  -1,067
  -1,146
  -1,227
  -1,311
  -1,396
  -1,485
  -1,576
  -1,671
  -1,769
  -1,871
  -1,977
  -2,088
  -2,204
  -2,325
  -2,451
  -2,582
  -2,720
  -2,864
  -3,015
  -3,173
  -3,338
  -3,511
  -3,693
  -3,883
Cash from investing activities, $m
  -2,108
  -1,731
  -1,836
  -1,945
  -2,056
  -2,171
  -2,289
  -2,413
  -2,541
  -2,675
  -2,816
  -2,962
  -3,115
  -3,275
  -3,443
  -3,618
  -3,802
  -3,995
  -4,198
  -4,410
  -4,633
  -4,867
  -5,111
  -5,369
  -5,639
  -5,922
  -6,220
  -6,532
  -6,859
  -7,204
  -7,565
Free cash flow, $m
  786
  -534
  -539
  -625
  -717
  -811
  -908
  -1,008
  -1,111
  -1,218
  -1,330
  -1,446
  -1,568
  -1,694
  -1,827
  -1,965
  -2,110
  -2,261
  -2,420
  -2,586
  -2,761
  -2,943
  -3,135
  -3,336
  -3,546
  -3,767
  -3,999
  -4,242
  -4,497
  -4,765
  -5,046
Issuance/(repayment) of debt, $m
  36
  -611
  864
  960
  1,056
  1,152
  1,249
  1,347
  1,447
  1,549
  1,654
  1,762
  1,874
  1,989
  2,109
  2,233
  2,362
  2,496
  2,636
  2,782
  2,934
  3,093
  3,259
  3,433
  3,615
  3,805
  4,005
  4,213
  4,432
  4,661
  4,901
Issuance/(repurchase) of shares, $m
  -79
  1,558
  88
  112
  140
  171
  205
  240
  278
  318
  361
  291
  339
  390
  444
  501
  562
  625
  692
  763
  837
  916
  998
  1,085
  1,177
  1,273
  1,374
  1,480
  1,592
  1,710
  1,833
Cash from financing (excl. dividends), $m  
  -457
  947
  952
  1,072
  1,196
  1,323
  1,454
  1,587
  1,725
  1,867
  2,015
  2,053
  2,213
  2,379
  2,553
  2,734
  2,924
  3,121
  3,328
  3,545
  3,771
  4,009
  4,257
  4,518
  4,792
  5,078
  5,379
  5,693
  6,024
  6,371
  6,734
Total cash flow (excl. dividends), $m
  338
  414
  413
  446
  479
  513
  546
  580
  614
  649
  686
  607
  645
  685
  726
  769
  814
  860
  908
  958
  1,011
  1,065
  1,123
  1,183
  1,245
  1,311
  1,379
  1,451
  1,527
  1,606
  1,688
Retained Cash Flow (-), $m
  355
  -1,558
  -96
  -112
  -140
  -171
  -205
  -240
  -278
  -318
  -361
  -291
  -339
  -390
  -444
  -501
  -562
  -625
  -692
  -763
  -837
  -916
  -998
  -1,085
  -1,177
  -1,273
  -1,374
  -1,480
  -1,592
  -1,710
  -1,833
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
 
  -345
  317
  335
  339
  341
  341
  340
  336
  331
  324
  316
  306
  295
  282
  268
  252
  235
  216
  195
  173
  150
  124
  97
  69
  38
  6
  -29
  -66
  -104
  -145
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
 
  -309
  252
  233
  205
  176
  149
  123
  100
  80
  62
  47
  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
  77.4
  76.7
  75.8
  74.8
  73.5
  72.2
  70.6
  68.9
  67.1
  65.2
  63.7
  62.1
  60.4
  58.6
  56.7
  54.8
  52.7
  50.7
  48.6
  46.6
  44.5
  42.4
  40.4
  38.4
  36.4
  34.5
  32.6
  30.8
  29.1
  27.4

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 -6.6
Price to Sales 0.6
Price to Book 2.7
Price to Tangible Book
Price to Cash Flow 2.6
Price to Free Cash Flow 13.7
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 2.5% 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 656.51 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 $7.5 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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▶ AES Announces Quarterly Dividend   [Oct-13-17 08:00AM  Business Wire]
▶ EU mergers and takeovers (Oct 10)   [Oct-10-17 10:57AM  Reuters]
▶ EU mergers and takeovers (Oct 9)   [Oct-09-17 11:59AM  Reuters]
▶ EU mergers and takeovers (Oct 6)   [Oct-06-17 08:50AM  Reuters]
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▶ The AES Corp. Value Analysis (NYSE:AES) : August 21, 2017   [Aug-21-17 05:41PM  Capital Cube]
Financial statements of AES
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