AES -0.30 to 12.31, downgraded by UBS due to higher interest rates impacting earnings -
briefing -
UBS downgrades to Neutral due to rising interest rates and earnings deceleration at the Infrastructure segment driven by coal shutdowns (12.11 -0.50)
Analyst Gregg Orrill offered, "We downgrade AES to Neutral from Buy due to rising interest rates and earnings deceleration at the Infrastructure segment driven by coal shutdowns. Rates on the 10 year have increased to 4.75% from 3.52% when AES held their investor day on May 9. An inability to pass along a 100 bp increase in financing costs in new PPAs is a potential -1.3% impact on returns versus the company's 11.5% target in the U.S. This drives a reduction in our 5 year EPS growth forecast to 4.5% from 5.5% previously. A higher cost of capital limits growth opportunities at the international Infrastructure business where we assume a -16% annual EBITDA change '23-'27."
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