AES: Data Center Power Demand Will Drive Upside Under Pending GIP Deal

Analysts have nudged their price target for AES higher to $24 from $23, reflecting a modest increase in fair value estimates supported by expectations for improved profit margins and growing opportunities tied to data center driven demand for utilities.

Analyst Commentary

Bullish analysts are pointing to a more constructive outlook for AES as they incorporate improving fundamentals and a clearer growth runway into their valuation models.

Recent target changes suggest greater confidence that the company can execute on its strategy while benefiting from structural demand tailwinds linked to power intensive data center expansion.

Bullish Takeaways

• Higher price targets, including the move to $24, signal that bullish analysts see upside to prior fair value estimates as earnings visibility improves.
• Analysts are factoring in expanding profit margins and disciplined capital deployment, supporting a more favorable risk reward profile for the stock.
• Growth in data center related demand is viewed as a multi year catalyst that can accelerate top line expansion and justify premium valuation multiples versus traditional utilities.
• Coverage updates across the regulated and diversified utilities space highlight AES as a potential beneficiary of shorter interconnection times and a strengthening project pipeline.

What's in the News

• BlackRock-owned Global Infrastructure Partners is reportedly nearing a roughly $38 billion takeover of AES, which would rank among the largest infrastructure deals ever, with an agreement expected within days (Financial Times, Bloomberg).
• AES shares surged about 14% in pre market trading after reports that GIP is set to acquire the utility, implying an enterprise value of more than $38 billion when including approximately $29 billion of debt (Financial Times).
• GIP is simultaneously in advanced talks to acquire Aligned Data Centers for about $40 billion, underscoring its push into assets poised to benefit from AI and power intensive data center growth, alongside the potential AES purchase (Bloomberg).
• AES has completed a long running buyback program initiated in 2015, repurchasing 46,478,682 shares for roughly $538 million, equivalent to 6.76% of shares outstanding, with no additional shares bought in the most recent quarter (company filing).

Valuation Changes

• Fair Value has risen slightly, increasing from $21.95 to approximately $22.20, aligning with the modest upward price target revision.
• Discount Rate has ticked up from 12.32% to 12.50%, reflecting a marginally higher required return in the updated valuation framework.
• Revenue Growth has fallen modestly, with long term assumptions reduced from about 10.93% to 10.23%, indicating slightly more conservative top line expectations.
• Net Profit Margin has risen moderately, moving from roughly 11.86% to 12.48%, signaling improved expectations for operating efficiency and profitability.
• Future P/E has edged lower, decreasing from about 11.42x to 11.13x, suggesting a slightly more conservative multiple applied to forward earnings.