Last Update 23 Jan 26

Fair value Increased 1.03%

AQN: 2026 Rate Cases And Index Shifts Will Drive Balanced Outlook

Analysts have inched their fair value estimate for Algonquin Power & Utilities up from about $8.33 to roughly $8.42, pointing to recent upgrades and expectations that upcoming 2026 rate case approvals could help narrow the company’s return on equity and valuation gap to peers.

Analyst Commentary

Recent Street research has turned more constructive on Algonquin Power & Utilities, with bullish analysts pointing to potential catalysts tied to the 2026 rate case cycle and what that could mean for returns and valuation relative to peers. At the same time, parts of the thesis still hinge on successful execution of those rate cases and the timing of implementation.

Bullish Takeaways

Bullish analysts see the multiple 2026 rate cases as a key inflection point that could help narrow Algonquin’s return on equity gap versus comparable utilities if approvals come through as expected.
The upgrade in rating is framed around clearer visibility on those upcoming regulatory decisions, which some view as improving the risk and reward profile versus where the stock is currently priced.
The lift in the referenced price target from $7 to $7.50 signals that some analysts view the shares as not fully reflecting potential benefits from implemented rate cases and a closer alignment with peer valuations.
Supportive regulatory outcomes in 2026 could give management more room to execute on core utility operations, which bullish analysts see as important for stabilizing and potentially improving the company’s earnings profile over time.

Bearish Takeaways

Bearish analysts are likely to focus on execution risk around the 2026 rate cases, since approval timelines, allowed returns and actual implementation details are not yet finalized.
The thesis that Algonquin can close its valuation and return on equity gap to peers depends heavily on regulatory outcomes, which may limit conviction for investors who prefer clearer visibility before re-rating the shares.
Some investors may view the price target of $7.50, compared with a fair value estimate around $8.42, as a sign that not all analysts see current market pricing as overly conservative.
If rate case decisions or implementation differ from expectations, the path to narrowing the gap with peers on both returns and valuation could be slower or more uneven than bullish analysts anticipate.

What's in the News

Algonquin Power & Utilities Corp. is set to be added to the S&P/TSX Completion Index, which can influence how index-oriented funds gain exposure to the stock. (Index Constituent Adds)
The company is being dropped from the S&P/TSX 60 Index, a benchmark followed by many large cap investors. (Index Constituent Drops)
Algonquin Power & Utilities Corp. is also being removed from the S&P International 700 Index, affecting global index inclusion. (Index Constituent Drops)
The stock is being dropped from the S&P Global 1200 Index, another broad global benchmark that some passive funds track. (Index Constituent Drops)
Algonquin Power & Utilities Corp. announced that Robert J. Stefani will become Chief Financial Officer on January 5, 2026, bringing prior CFO experience from Southwest Gas Holdings Inc. and PECO Energy, while Brian Chin will remain Interim CFO until then. (Executive Changes)

Valuation Changes

Fair Value Estimate has risen slightly from CA$8.33 to CA$8.42 per share, reflecting a modest upward adjustment.
Discount Rate has edged down from 6.23% to about 6.21%, indicating a small change in the rate used to discount future cash flows.
Revenue Growth assumption has eased from roughly 4.63% to about 4.35%, pointing to a slightly lower expected growth rate in future revenues.
Net Profit Margin has moved up from about 18.79% to roughly 18.94%, a small improvement in expected profitability levels.
Future P/E has ticked higher from about 10.80x to roughly 10.96x, signaling a marginally higher earnings multiple in the updated model.

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.What are the underlying business or industry changes driving this perspective?

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 Earnings and Revenue Growth

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 September 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 61.0x 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$7.77, the analyst price target of CA$7.37 is 5.4% 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.

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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.

Analysts Maintain Algonquin Power Price Target as Revenue Outlook Improves Modestly