AES Boosts Growth Outlook With Renewables & Data Center Deals

The AES Corporation AES continues to benefit from a diversified energy portfolio and strong long-term contracts with major customers like data centers. The company’s focus on expanding its renewable generation portfolio should act as a growth catalyst.

However, this Zacks Rank #3 (Hold) company faces risks related to declining wholesale prices and unfavorable weather patterns.

Factors Acting in Favor of AES

AES is accelerating its growth by investing in renewable energy and energy storage, using innovation and AI to improve clean-energy development, and benefiting from a globally diversified business. Rising power demand from AI-driven data centers is boosting opportunities, and long-term contracts (Power Purchase Agreements or PPAs) position AES as a key energy partner for tech companies.

The company expects to sign at least 4 gigawatts (GW) of PPAs in 2025 and has already signed or been awarded 2.2 GW year to date, including 1.6 GW with data center customers. It remains on track to meet its 2023-2025 target of 14-17 GW in signed PPAs.

To promote clean energy adoption, AES has also been rapidly retiring its coal-fired units, reducing carbon emissions from its portfolio. The company has made significant progress on its coal generation exit initiatives and intends to exit a major portion of its remaining coal facilities by year-end 2025.

Challenges Faced by AES

The wholesale prices of electricity have declined significantly in recent years due to the increased penetration of renewable generation resources, cheap natural gas and demand-side management. This trend is most likely to continue and might have a material adverse impact on the financial performance of the company.

AES’ hydroelectric generation facilities are sensitive to changes in the weather, particularly the level of water inflows into generation facilities. Dry hydrological conditions in Panama, Brazil, Colombia and Chile can present challenges for the company’s businesses in these markets. Low inflows can result in low reservoir levels, reduced generation output and subsequently increased prices for electricity.

AES’ Share Price Performance

In the past six months, shares of the company have risen 21.5% compared with the industry’s 7.6% growth.

Stocks to Consider

Some better-ranked stocks from the same industry are Ameren AEE, CenterPoint Energy CNP and OGE Energy OGE, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ameren’s long-term (three to five years) earnings growth rate is 8.52%. The Zacks Consensus Estimate for AEE’s 2025 EPS implies an improvement of 8% from that recorded in 2024.

CNP’s long-term earnings growth rate is 8.86%. The Zacks Consensus Estimate for 2025 EPS calls for an increase of 9.3% from that recorded in 2024.

OGE’s long-term earnings growth rate is 6.97%. The company delivered an average earnings surprise of 10.5% in the last four quarters. 

 

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research