The AES Corporation (AES)

Conclusion

AES is a US-based power generation and utility company. It operates about 34,740 megawatts of generation, serves 2.7 million customers, and has operations in the United States and several countries in Latin America, Europe, Asia and the Middle East. At 14.90 USD on 9 November 2026, its market capitalisation is 10.63 billion USD and its enterprise value is 41.87 billion USD.

The verdict is undervalued. The fair value band runs from 19.02 to 28.53 USD, with a midpoint of 23.78 USD and a margin of safety of 59.6%. Today's multiples sit below their own ten-year medians: price to earnings of 5.82 against 24.16, price to book of 1.86 against 3.64, price to sales of 0.78 against 0.97, and EV to EBITDA of 11.18 against 11.67. The discounted cash flow value is not available because starting free cash flow is negative, and no reverse DCF is available. Revenue grew 4.8% a year over five years and EPS 83.3%, but the growth implied by the price cannot be checked.

What holds the case up is the operating margin of 19.5% and the net margin of 13.5%, together with a dividend yield of 4.7%. What would break it is the interest coverage of 1.42, net debt of 8.34 times EBITDA, and trailing free cash flow conversion of -83.0%. The Altman Z-score of 0.54 adds to the concern.

Financial health

Financial health is red, because three of its four assessed signals are bad. The current ratio is 0.86 and the quick ratio 0.50 at 30 September 2026. Net debt to EBITDA is 8.34, debt to equity 5.82, and trailing interest coverage 1.42. The Altman Z-score is 0.54, in the distress zone. The Altman model was designed for manufacturers, so for a utility this reading is indicative only. Insolvency risk: low, about 2.0% by the estimate of the Ohlson model over one to two years. That low estimate sits uneasily beside the weak coverage and leverage, and it should be weighed with them.

Earnings quality

Earnings quality is yellow: the accounting signals are sound, but cash generation is weak. Free cash flow conversion is -83.0% on a trailing basis and -677.9% over five years. Free cash flow after stock-based compensation is -1.52 billion USD. The accrual ratio is -6.8%. Stock-based compensation relative to revenue is not available because that figure is missing from the data. The share count has risen 1.3% a year over five years, so the company has been diluting shareholders rather than buying back stock. The Piotroski score is 5 of 9. The Beneish M-score is -2.70, in the unlikely range for earnings manipulation. Over the last eight quarters, earnings beat expectations five times and missed three times, with an average surprise of 18.6%. Current-year estimates barely moved over 90 days (0.09%), while next-year estimates rose 0.23%, with growth of 4.09% expected.

Profitability

Profitability is green, held up by margins that are high against the company's own history, but returns on capital barely cover the cost of capital. The gross margin is 21.3% against a ten-year median of 23.0%. The operating margin is 19.5% against 21.1%. The net margin is 13.5% against 1.2%. Return on invested capital is 5.59% against a WACC of 6.01%, a ROIC minus WACC of -0.42%. The five-year median ROIC is 4.24%. Return on equity is 32.0%, but leverage inflates it. The DuPont split shows a net margin of 7.8%, an asset turnover of 0.24 and an equity multiplier of 7.52, at 31 December 2025.

Growth

Growth is yellow, because revenue has shrunk over three and ten years and only the five-year figure is positive. Revenue compound growth is -1.0% over three years, 4.8% over five years and -1.4% over ten years. Revenue grew in 5 of the 10 comparable years. EPS compound growth is 83.3% over five years and 11.6% over ten. The five-year EPS figure is far above the ten-year one, so it should be read with care. The consensus estimate for next year's EPS growth is 4.09%.

Valuation

Valuation is green, with every multiple trading below its own ten-year median. Price to earnings is 5.82 against a median of 24.16, a premium of -75.9%. EV to EBITDA is 11.18 against 11.67, a premium of -4.2%. Price to sales is 0.78 against 0.97, a premium of -19.1%. Price to book is 1.86 against 3.64, a premium of -48.9%. The free cash flow yield is -14.3%. The discounted cash flow value is not available, because starting free cash flow is negative; the model uses a discount rate of 9.5% and terminal growth of 2.5%. The fair value band runs from 19.02 to 28.53 USD, with a midpoint of 23.78 USD and a margin of safety of 59.6% at 14.90 USD. The fair value from historical multiples is 23.78 USD. The reverse DCF is not available. The band rests on fixed assumptions and is not a price target. The dividend yield is 4.7% and the forward yield 4.7%, but the payout on free cash flow is not available because free cash flow is negative.

Risks

Each weak number carries its own risk. Interest coverage of 1.42 means earnings cover interest only narrowly, so a fall in earnings or a rise in borrowing costs would press directly on debt service. Net debt of 8.34 times EBITDA leaves little room for refinancing. Free cash flow after stock-based compensation of -1.52 billion USD means operations are not funding the company's spending, and the share count has risen as a result. ROIC of 5.59% against a WACC of 6.01% shows that recent investment is not yet earning above its cost. The values not available are the discounted cash flow value, the reverse DCF, stock-based compensation relative to revenue, and the payout on free cash flow. This analysis also has limits: there is no debt maturity schedule and no revenue by segment, so refinancing timing and the mix of earnings across businesses cannot be assessed.