Algonquin Power is a turnaround story, this analyst says

National Bank Financial analyst Baltej Sidhu says Algonquin Power & Utilities (Algonquin Power & Utilities Stock Quote, Chart, News, Analysts, Financials NYSE:AQN) is showing signs of operational improvement, but investor sentiment remains pressured following a reduction in the company’s long-term guidance.

As reported by The Globe and Mail, Sidhu maintained his “Outperform” rating on the shares but trimmed his price target to US$7.25 from US$7.50. The Street average target stands at about US$7.12.

In his March 9 investors’ note, Sidhu described Algonquin as “a turnaround story,” saying the company’s 2025 results reflect progress in executing its restructuring and operational improvement initiatives.

“While near-term sentiment could remain fragile, we see improving fundamentals, identifiable earnings levers, and valuation support,” he said.

Algonquin shares fell about 11.6% on Friday after the Oakville, Ont.-based company reduced its fiscal 2027 earnings-per-share guidance by US$0.04 to US$0.44, citing higher expected tax assumptions. The downward revision overshadowed stronger-than-expected fourth-quarter results, with the company reporting Q4 2025 EPS of US$0.34, above the high end of its guidance range of US$0.30 to US$0.32.

Sidhu said the market reaction may be overdone given improving operational metrics.

“While some pullback is understandable, the underlying fundamentals and earnings trajectory continue to improve,” he said, noting that upcoming regulatory rate decisions could provide further earnings visibility.

The company’s earned return on equity improved 130 basis points year-over-year to 6.8%, moving closer to management’s long-term target of 8.5%. Sidhu estimates that reaching the allowed ROE of 9.2% would represent an additional US$70-million to US$80-million in annual earnings power, or roughly US$0.10 per share.

“For context, each 50 basis point move in earned ROE translates to roughly US$0.03 per share of EPS,” he said.

Sidhu also sees a rising possibility that Algonquin could pursue a corporate redomicile to the United States as tax credits and other tax shields begin to roll off after 2026.

“Addressing tax leakage could provide an offset to the $0.03 per share drop in guidance,” he said.

According to Sidhu, a potential redomicile would likely unfold in multiple stages, potentially beginning with relocating the company’s headquarters before any broader structural change. Algonquin could also pursue balance-sheet optimization by recapitalizing debt within its Liberty Utilities subsidiary.

Meanwhile, Sidhu said the company’s balance sheet improvements support its turnaround plan. Algonquin paid down $1.6-billion of debt in 2025, lifting its funds-from-operations-to-debt ratio to 12.8% from 10.4% in 2024, moving closer to its 13% to 15% target range.

The stronger leverage profile, he said, should allow the company to internally fund roughly 65% to 70% of its planned US$3.2-billion capital expenditure program between 2026 and 2028 while maintaining an investment-grade credit rating and avoiding equity issuance through 2027.

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