BMO Capital analyst Benjamin Pham has reiterated their bullish stance on AQN stock, giving a Buy rating on March 24.
Benjamin Pham has given his Buy rating due to a combination of factors, notably the anticipated progress in Algonquin Power & Utilities’ renewable power asset sale. He believes that this sale, which is expected to be announced by mid-2024, will lead to a reduction in debt and a simplification of operations, thereby unlocking value for shareholders. His analysis indicates that the stock is trading at an attractive valuation, with a forward P/E ratio significantly lower than that of its Canadian utility peers, which suggests that there is potential for price appreciation. Moreover, Pham sees a promising return potential, inclusive of a generous 7% dividend yield, which supports his target price of US$7.50.
Regarding the company’s growth prospects, Pham anticipates earnings per share (EPS) growth in the 4-7% range as Algonquin transitions to a pure-play utility. This growth is expected to stem from rate base expansions and improvements in realized returns. Additionally, Pham is optimistic about upcoming rate cases, which could help close the gap between current earnings and allowed returns. On the dividend front, management’s reassurance about the sustainability of its dividend, despite the expected high payout ratio following the renewable sales, further contributes to the positive outlook. Pham’s analysis suggests that even if the payout ratio were to reach a peak, it would gradually come back down to levels more in line with industry peers.
In another report released on March 24, Wells Fargo also maintained a Buy rating on the stock with a $8.00 price target.
AQN’s price has also changed moderately for the past six months – from $5.580 to $6.230, which is a 11.65% increase.
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Algonquin Power & Utilities (AQN) Company Description:
Algonquin Power & Utilities Corp. is a diversified utility company, which through its subsidiaries, engages in the ownership and operation of a portfolio of regulated and non-regulated generation, distribution, and transmission utility assets. It focuses on delivering reliable earnings, cash flow, and dividend growth through strategic acquisitions and operational excellence. The company was founded on August 1, 1988 and is headquartered in Oakville, Canada.
