Alex Gates of Clayton Partners presented his in-depth investment thesis on The AES Corporation (US: AES) at Best Ideas 2021.

Thesis summary:

AES is one of the largest electricity generation and utility companies in the world and is transforming into a market-leading renewable energy developer. With 7 GW of renewable backlog, the company should grow earnings 7-9% through 2022, well ahead of its peers in the utility indices. Despite this outsized growth, the company trades at 16x next year’s consensus earnings, as compared to 20x for the utility index and more than 30x for the closest peer, NextEra (US: NEE).

Led by an outstanding CEO and an aligned board, the company is moving away from coal and into solar/wind/storage at an aggressive pace.

As a free call option, AES is a 50% owner of Fluence, the largest battery storage provider in the world by GW deployed and awarded. After recently receiving a growth investment that valued Fluence at $1+ billion, AES appears poised to take Fluence public in 2022 or sooner. A Fluence IPO could add $7-10 per share share of value to AES based on peer multiples.  Additional technology investments and an innovative partnership with Google could add another $3 per share.

Alex sees a $37 stock price for AES in 2022 (~35% upside), based on average utility multiples and an IPO of Fluence. However, given the pace of growth relative to NextEra, the best way to value AES may be using NEE’s earnings multiple, which would imply a price of $58+ per share (100+% upside).

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About the instructor:

Alex Gates is the Director of Research and Chief Compliance Officer at Clayton Partners LLC. Founded in 2003, Clayton Partners is an opportunistic value investment firm. Clayton manages a private investment partnership and individual separate accounts. We take a private equity approach to investing in the public markets and look to align ourselves with shareholder friendly management teams that focus on long-term value creation. Alex leads our effort to find compelling public and private investment opportunities in sustainable businesses which have a positive impact on climate change. The current focus is on investments in renewable energy, bio-fuels, recycling and water infrastructure. He holds a Masters Degree in Business Economics from the University of California at Santa Barbara. Prior to his graduate education, he completed a dual major BS in Economics and Statistics from Cal Poly State University. At both institutions, Alex concentrated in finance and economic modeling. He earned the Chartered Financial Analyst designation in 2015.

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