Yahoo Finance Algonquin downgraded by CIBC; analyst predicts long road to recovery
The company cut its dividend in January and announced a plan to sell US$1 billion in assets
Shares of Algonquin Power & Utilities (AQN.TO)(AQN) fell more than five per cent on Tuesday after analysts at CIBC Capital Markets predicted current challenges could weigh on earnings into 2025.
In a widely expected move, the Oakville, Ont.-based company confirmed on Monday that its US$2.6 billion deal to buy Kentucky Power from American Electric Power had fallen through. Announced in October 2021, when borrowing costs were lower and the North American economy seemed stronger, many analysts were skeptical the transaction would close, especially after U.S. federal officials blocked the sale, citing concerns about rising power prices.
News of the deal's demise initially lifted Algonquin's stock, but Toronto-listed shares declined again on Tuesday, falling 4.66 per cent to $10.48 as at 12:43 p.m. ET.
CIBC analyst Mark Jarvi downgraded Algonquin's New York-listed stock to "neutral" from "outperform," and slashed his 12-month price target to US$10 from US$17, in a note to clients on Tuesday.
"We believe the decision to walk away from the Kentucky Power deal makes the most sense given the more challenged financial position of Algonquin today," he wrote. "However, the path forward to a full recovery will not be easy."
In a bid to shore up investor confidence amid a sagging share price, inflation challenges, and rising interest rates, Algonquin cut its dividend in January and announced a plan to sell US$1 billion in assets.
Jarvi says Algonquin's stake in Atlantica Sustainable Infrastructure (AY) could be up for sale, especially given the ongoing strategic review at the renewable energy company. He warns the asset sale process could weigh on Algonquin's earnings per share outlook into 2025.
"Investor confidence has been severely eroded and will take time and stronger execution to be restored," Jarvi added. "While we see more upside than downside at current levels, we cannot recommend Algonquin with any conviction at this time."
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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