Yahoo Finance Algonquin stock an 'attractive opportunity' after big plunge: Wells Fargo
Company has seen its Toronto-listed stock dive more than 50% in the past 12 months
Battered shares of Algonquin Power & Utilities (AQN.TO)(AQN) climbed about four per cent on Wednesday after Wells Fargo called the stock an “attractive opportunity,” following a sharp sell-off over the past year.
Oakville, Ont.-based Algonquin has seen its Toronto-listed stock dive more than 50 per cent in the past 12 months. The drop came as rising interest rates hurt demand for capital-intensive, utility-scale renewable energy projects. At the same time, a series of acquisitions have left Algonquin saddled with more than US$8 billion in debt at the end of the second quarter.
Bowing to pressure from activist investors, Algonquin is now attempting to reshape itself as a "pure-play" regulated utility through the sale of its wind and solar power portfolio. The renewable assets span 11 U.S. states and six Canadian provinces.
However, Algonquin’s stock has plunged since revealing its plan to abandon non-regulated renewable energy on Aug. 10, the same day CEO Arun Banskota announced his departure from the company.
“AQN's sell-off provides an attractive opportunity,” Wells Fargo analyst Neil Kalton wrote in a note to clients published after the closing bell on Tuesday. “We think AQN's platform should attract substantial interest.”
Kalton reaffirmed his “overweight” rating, and US$8 per share price target on New York-listed shares.
His optimism about Algonquin finding a suitable buyer for its renewable assets echoes interim CEO Christopher Huskilson's remarks in August. He said the company has already received inquiries about buying the portfolio, predicting the assets will be "very attractive to the marketplace."
“Yes, rising rates adversely impact transaction multiples,” Kalton wrote. “However, we think demand for utility-scale renewables is strong (helped by the U.S. Inflation Reduction Act).”
He estimates Algonquin could net US$3 billion from a potential transaction, including the company’s 42 per cent stake in U.K.-based Atlantica Sustainable Infrastructure (AY).
In August, Huskilson declined to speculate about potential deal value, citing a desire not to influence a competitive process.
Last month, CIBC Capital Markets slashed price targets for nearly 20 utility and pipeline stocks, including Algonquin, to reflect higher interest rates.
“As much as we believe renewables are overly discounted and offer good value, valuations could stay depressed until bond yields stop rising and growth outlooks are fully reset,” analysts Robert Catellier and Mark Jarvi wrote on Oct. 19.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
Download the Yahoo Finance app, available for Apple and Android.
