Algonquin Power stock keeps “Strong Buy” rating at Industrial Alliance

Following the company’s second quarter results, Industrial Alliance Securities analyst Jeremy Rosenfield has maintained his “Strong Buy” rating on Algonquin Power (Algonquin Power Stock Quote, Chart, News TSX:AQN).

On August 8, AQN reported its Q2, 2019 results. The company earned (USD) $156.6-million on revenue of $343.6-million, a topline that was down six per cent over the same period last year.

Among the quarterly highlights, the company said, was the acquisition of Bermuda Light Electric Company, the sole provider of power to approximately 63,000 businesses and residents in Bermuda.

“We are pleased to report solid operating results for the second quarter of 2019 while at the same time making significant progress on the execution of our five year $7.5 billion capital plan,” CEO Ian Robertson said. “We have received the final certificates allowing 600 MW of new wind generation to be built in the U.S. Midwest as we transition away from coal generation. This is part of our ‘Greening the Fleet’ initiative which continues to demonstrate our ongoing commitment to sustainability.”

Algonquin beats street expectations…

Rosenfield notes that Algonquin’s Adjusted EBITDA number of (US) $190-million came close to his estimate of $196-million and beat the street consensus of $182-million. The same thing happened in terms of Adjusted EPS, where the company’s $0.13 bested the street consensus of $0.11 and fell just short of the analyst’s prediction of $0.14.

Rosenfield says the overall growth outlook remains highly attractive for Algonquin Power stock. He says he expects the company’s investment plan to drive high single-digit EPS and Fund From Operations share growth.

“AQN remains the most well-balanced growth-and-income investment option in our coverage universe, supported by the Company’s (1) diversified business model (regulated utilities & non-regulated power), (2) strong near-term organic growth (8-10% EPS and FFO/share growth, and 13%+ FCF/share growth through 2023), (3) attractive dividend growth (~10%/year through 2021), (4) international investment opportunities (via the AAGES joint venture and equity stake in Atlantic Yield), and (5) upside from additional growth initiatives that are not included in forecasts,” the analyst says.

Algonquin Power stock is still undervalued, the analyst says

In a research update to clients today, Rosenfield maintained his “Strong Buy” rating and one-year price target of $19.00 on Algonquin Power, implying a return of 15.1 per cent, including distribution.

The analyst thinks AQN will post EBITDA of (USD) $827-million on revenue of $1.82-billion in fiscal 2019. He expects those numbers will improve to EBITDA of $1.01-billion on a topline of $2.54-billion the following year.

Rosenfield noted that the company’s 2019 capex budget was updated.

“AQN updated its 2019 capital budget to US$1.5-1.7B (vs. US$1.4-1.6B previously), including US$710-820M in Power (vs. US$590-710M previously), and US$790-880M in Utilities (vs. US$810-890M previously). International investments (within Power) are expected to be US$300-370M (vs. US$220-300M previously), which reflects the increased ownership in AY, along with the acquisition in Bermuda,” he said.

Overall growth outlook looks strong…

“The overall growth outlook remains strong,” the analyst adds. “At 2018 Investor Day, AQN highlighted (1) its ~US$7.5B capital investment plan through 2023, and (2) target ranges of 12-16% average annual EBITDA growth, and 9-13% average annual EPS growth CAGR 2017-23E; the Company also reaffirmed its stance on dividend growth at ~10%/year through 2021.”