On Aug 20, 2015, we (Zacks.com) have updated a research report on Arlington, VA-based global power company AES Corporation AES 

The company is focused on expanding its generation capacity and has a series of projects under construction waiting to come online in the near term. AES Corp. expects to bring into service new capacity of 7,131 megawatt (MW) from 2015 through 2018. In comparison, it brought online 600 MW in the 2012 to 2014 time frame. In the first half of 2015, the company commissioned 1.3 gigawatt (GW) of new capacity, constituting 90% of the targeted 1,525 MW capacity for 2015.

AES Corp. is also focused on maintaining its financial flexibility by reducing overhead costs. The company targets to reduce operation and maintenance costs by $100 million through 2018. Its steady effort toward cost curtailment will help in improving margins.

Additionally, AES Corp. is expanding its existing LNG infrastructure and remains focused on gas and renewable power generation, which is appreciable given the rising regulatory pressure on curbing carbon emissions. The company is on track with its 1,384 MW Southland Repowering Project in California, which is scheduled to begin construction in 2017.

However, AES Corp. recently reported lower earnings per share in the second quarter due to the timing of planned maintenance at certain businesses, a stronger U.S. dollar, and lower demand and contracting strategy in Brazil. The company continues to face outages and the risk of poor hydrology at its Brazilian strategic business units.

The company expects 2015 earnings to suffer a negative impact of $0.07 per share due to poor hydrology and demand in Brazil. Dry hydrology is leading to high electricity prices by requiring the dispatch of more expensive thermal energy. As a result, AES Corp. expects a 4% year-over-year decline in volume at its Brazilian utilities in 2015.

Moreover, AES Corp. generates a large amount of electricity from coal. In Aug 2015, the White House released the final version of the Clean Power Plan calling for CO2 reduction of 28% by 2025 and 32% by 2030 from 2005 levels. This came a tad stricter than the draft proposal of Jun 2014, wherein the U.S. Environmental Protection Agency had proposed total CO2 reduction of 29% by 2025 and 30% by 2030. The proposal recognizes power generating plants as the largest source of carbon pollution in the U.S., accounting for around one-third of the total domestic greenhouse gas emission. If implemented without any downward revision, it could be detrimental for AES Corp.'s coal-fired generation units, thereby affecting its margins.

Zacks Rank

AES Corp. currently holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the power sector are DTE Energy Company DTE, Edison International EIX and Consolidated Edison, Inc. ED, each carrying a Zacks Rank #2 (Buy).