Algonquin Power is undervalued, says Industrial Alliance Securities

A quarter that was better than he expected has Industrial Alliance Securities analyst Jeremy Rosenfield feeling bullish about Algonquin Power (Algonquin Power Stock Quote, Chart, News: TSX:AQN, NYSE:AQN).

On Tuesday, Algonquin Power reported its Q3, 2017 results. The company earned (U.S.) $59.4-million on are revenue of $443.3-million, a topline that was up 100.3 per cent over the same period last year.

“Our third quarter results demonstrate the continuing benefits of our diversified portfolio of regulated utility operations augmented with long term contracted electric generating facilities,” said CEO Ian Robertson. “While our current business has an enviable pipeline of growth prospects, we are excited about the recent announcement of our measured approach to international expansion, adding yet another avenue of growth to buttress our commitment to sustained increases in our earnings, cash flow and dividends.”

Rosenfield notes that Algonquin’s third quarter results bested his and the street consensus expectations. He says that although the international investment platform stole headlines, the company’s EDE investment is poised to drive significant growth.

“In our view, AQN remains the most well-balanced investment option in the sector, supported by the Company’s (1) diversified business model (power & utilities), (2) leverage to favourable macroeconomic themes (e.g., the strong USD), (3) healthy near-term organic and M&A-based growth (forecasted 8-10% EPS and FFO/sh growth, and 15%+ FCF/sh growth through 2020), and (4) attractive dividend growth (~10%/year),” the analyst said. “The creation of AAGES and investment in Atlantic Yield provide immediate accretion and a well conceived strategic platform for AQN to grow in international markets. In addition, we see significant upside from AQN’s capital investment plan at EDE, if approved by regulators.”

In a research update to clients today, Rosenfield maintained his “Strong Buy” rating and one-year price target of $17.00 on Algonquin Power, implying a return of 26.7 per cent at the time of publication.

Rosenfield thinks Algonquin Power will generate EBITDA of $859.0-million on revenue of $2.01-billion in fiscal 2017. He expects those numbers will improve to EBITDA of $875-million on a topline of $2.32-billion the following year.