Last Update27 Aug 25
Algonquin Power & Utilities’ unchanged consensus price target of CA$7.37 reflects a cautiously optimistic outlook supported by improved earnings guidance and growth targets, though execution risks around regulatory rate cases and a valuation in line with peers limit near-term upside.
Analyst Commentary
- Bullish analysts cite Algonquin’s ambitious growth targets and improved long-term earnings outlook as drivers of higher price targets.
- Positive investor sentiment has been observed following the company’s new guidance and strategic updates.
- Analysts note that realizing these targets is contingent upon Algonquin's successful cost reduction and narrowing the gap between earned and allowed returns on equity.
- Execution risk remains around key regulatory rate cases, which are critical to achieving the projected EPS improvements.
- While near-term outlooks have brightened, the current valuation is considered in line with North American utility peers, offering limited margin of safety.
Valuation Changes
Summary of Valuation Changes for Algonquin Power & Utilities
- The Consensus Analyst Price Target remained effectively unchanged, at CA$7.37.
- The Future P/E for Algonquin Power & Utilities has significantly risen from 10.97x to 15.07x.
- The Consensus Revenue Growth forecasts for Algonquin Power & Utilities remained effectively unchanged, at 3.4% per annum.
Key Takeaways
- Leadership changes and strategic shifts towards a pure-play regulated utility aim to enhance operational efficiency and future earnings.
- Ongoing regulatory developments and participation in capital projects are expected to boost revenue and improve financial performance.
- Strategic transitions and leadership changes introduce risks, compounded by operational inefficiencies and regulatory challenges, potentially impacting Algonquin's revenue and earnings.
Catalysts
About Algonquin Power & Utilities- Operates in the power and utility industries.
- The recent leadership transition, specifically appointing Roderick West as CEO, is poised to accelerate Algonquin's strategic plan for becoming a pure-play regulated utility, potentially enhancing operational efficiency and future earnings.
- Algonquin’s strategic transformation into a pure-play regulated utility, including the sale of its Renewables business, presents a focused pathway for improving rate base growth and authorized return on equity, which should enhance future revenue and earnings.
- The company's clear plan to optimize its IT platform and drive operational efficiency aims to address existing regulatory lag, facilitating improvements in net margins by achieving its target return on equity more rapidly.
- Progress on regulatory cases in several key jurisdictions, including settlements in Missouri and Arkansas, sets the stage for increased rates, which can lead to higher revenue and improved financial performance moving forward.
- Engagement in significant capital projects through the Southwest Power Pool's integrated transmission planning process provides opportunities for substantial rate base growth over the next 5 to 7 years, positively impacting future earnings and revenue.
Algonquin Power & Utilities Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Algonquin Power & Utilities's revenue will grow by 3.4% annually over the next 3 years.
- Analysts assume that profit margins will increase from 3.0% today to 17.0% in 3 years time.
- Analysts expect earnings to reach $447.9 million (and earnings per share of $0.44) by about August 2028, up from $70.9 million today.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.9x on those 2028 earnings, down from 62.4x today. This future PE is lower than the current PE for the CA Integrated Utilities industry at 23.1x.
- Analysts expect the number of shares outstanding to grow by 0.1% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 5.97%, as per the Simply Wall St company report.
Algonquin Power & Utilities Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- The company is transitioning to a pure-play regulated utility and has sold its Renewables business. Such strategic shifts could lead to integration and execution risks, potentially impacting Algonquin's future revenue and earnings.
- The company's actual earned Return on Equity (ROE) is substantially below its allowed ROE, indicating operational inefficiencies that must be addressed promptly to prevent a negative impact on net margins and earnings.
- The leadership transition, including the appointment of a new CEO and CFO, while potentially positive in the long term, introduces short-term uncertainty which could affect operational stability and financial performance.
- A delay in the Empire Electric Missouri rate case and ongoing billing investigations add regulatory risk that could prolong revenue realization and potentially impact earnings.
- The recent SAP implementation has caused operational challenges, particularly in customer service and billing, which, if unresolved or further delayed, could negatively impact customer satisfaction and affect revenue and earnings.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of CA$7.369 for Algonquin Power & Utilities based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$9.06, and the most bearish reporting a price target of just CA$6.01.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.6 billion, earnings will come to $447.9 million, and it would be trading on a PE ratio of 10.9x, assuming you use a discount rate of 6.0%.
- Given the current share price of CA$7.97, the analyst price target of CA$7.37 is 8.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
How well do narratives help inform your perspective?
Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
