Algonquin Power & Utilities Corp (AQN.TO)

Looks like it'll walk away from Kentucky acquisition. This would significantly help balance sheet and increase cashflow flexibility, so they don't have to sell as many assets. Tough to buy right now, but hold if you own it.

Depends on what happens with Kentucky Power. Latest news is that they're backing away from the acquisition, a move that would really help their balance sheet. Valuation not bad at 13.4x. Models negative EPS growth. He's nibbled, but wouldn't add here. See his Top Picks.

AQN has had poor execution and much lower earnings than expected last year. 
High rates have not helped. 
It also cut its dividend which always makes us more cautious. 
This was after management more or less indicated the dividend was safe, so they lose a point for that too. 
We think it is OK for income. 
Debt is high, and growth is not huge. 
But the company took the painful step on the dividend, and investors' initial reaction was harsh, and it has slowly worked its way higher.  
We would consider it a HOLD. 
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A tough one. When AQN announced it was buying KP, the macro was very different. Now, interest rates are much higher. That said, finding a good fit like KP into AQN is rare and will ultimately benefit AQN, Yes, AQN carries too much debt, but so do other companies like Altagas. However, AQN can sell some assets above value given strong power demand in order to rectify that debt over time. For the whole space, electricity demand across North America has increased given stagnation for a long time. Such stocks are a long-term opportunity. AQN will muddle through this, though maybe longer than short-term investors want. He's sticking with it.

AQN is recovering and remains cheap. 
We think the shareholder base has turned over now (after the dividend cut) and we think it can be held for a couple of quarters to see if the turnaround takes hold.  
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Perhaps all those shareholders need to recover their losses, since AQN-T averages 4.5 shares a day compared to its peers. (Brookfield Renewable’s average daily volume is 218,372.) As a shareholder, I am holding on and still advise buying on dips for the long haul as you collect that divvy. AQN has righted its debt-laden ship, but it takes time to turn around a massive vessel in open waters. Read Budget winners for our full analysis. 

It dropped so quickly. The founder left a few years ago--maybe that was the signal. New managers came in and let their floating lending rate debt levels get out of hand as interest rates rise. This hampers growth. There are delays in their projects, which means higher taxes. However, they cut their dividend and righted their guidance. Overhang is this Kentucky Power takeover, with a April 26 deadline. (Regulators have twiced declined the deal.) If it happens, AQN will take on more debt to fund this. AQN has good assets and it trades at a discount to peers. They will not issue equity for the next few years, but sell some existing assets to finance growth.

Then, last Friday when markets were selling off yet again, AQN rallied 3% after issuing its latest report. Q4-2022 adjusted EPS came in at $0.22, which missed the street’s estimate of $0.27, while the full-year clocked in at $0.69 “near the top end of” their revised guidance. At least Q4 adjusted earnings rose 10% YOY while full-year gained 6%. Further, the company sold nearly $360 million of wind-power assets before 2022 ended to shore up the balance sheet. By the end of last September, about 22% of their debt consisted of that nasty variable rate stuff. By the end of 2022, about 89% of debt was fixed. Read Adobe and Algonquin Power: Out of the Penalty Box? for our full analysis.

Does not follow company.
Company underperforming.
Very tough business model to make returns. 
Not impressed with management team.
High debt with poor assets. 
Equity issuances not good for investors. 

Has sold shares the past year.
Under pressure since November 2022.
Company has difficulties with operations.
Dividend cut by 40% recently. 
Better names in the sector.
Waiting for management to get control of company. 

Kentucky Power acquisition in question.
Optimistic on future of business.
Good long term hold.
Current share price presenting a buying opportunity. 

Cut dividend to a yield of 6%, and he wishes they'd cut more. Stopped the DRIP, which will help finances. Selling $1B of assets. All these things will keep credit rating where it is, which is very important for a utility. Two important questions. What assets are they selling and how much do they get? Secondly on Kentucky Power, April 26 is when they can walk away and pay a small breakup fee of $65M. Acquisition was overwhelming, would force them to take on more debt, and really hurt the stock. Thinks the market would prefer them not to do the deal.

Not one of his better moves, but he's still holding. Trying to get the Kentucky deal done. In a perfect world, the deal doesn't go through. Need to get debt down and rebuild confidence with investors. Dividend cut did not help. Got ahead of their skis. 

Owns shares in company.
Believes in prospects for company despite recent troubles.
Company caught offside by higher interest rates (floating rate debt).
Large Kentucky Power acquisition will be tough to digest.
Management has lost credibility in past few years.

Down 40% last few months. Rough Q3. Higher interest rates and taxes. Earnings profile should stabilize. Inexpensive valuation compared to peers. Good assets. Don't just toss it, as you're giving up too much value. 12x earnings. Window of opportunity to turn things around. Whether Kentucky Power goes through or not, positive either way. Reasonable path to $15 over the next 2-3 years. Yield is 5.87%.