The firm said it lowered its rating on the holding company, which operates a portfolio of electricity generation and distribution businesses, as it believes AES has a number of potential catalysts and the stock could be at an inflection point.
"AES shares have been volatile YTD and continue to suffer from weak U.S. gas and power markets, Brazilian hydrology, U.S. dollar strength and cautious emerging market sentiment," JPMorgan said in an analyst note.
"Meanwhile, potential firming PJM capacity prices and related reform, additional Brazilian genco purchased power support, a change of power in Argentina and any increase in exposure to Brazilian power markets via asset purchases could be upcoming catalysts," the note continued.
Shares of AES closed at $13.03 on Thursday afternoon.
Separately, TheStreet Ratings team rates AES CORP as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
"We rate AES CORP (AES) a HOLD. The primary factors that have impacted our rating are mixed-some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and notable return on equity. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, poor profit margins and a generally disappointing performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- AES CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, AES CORP increased its bottom line by earning $1.09 versus $0.37 in the prior year. This year, the market expects an improvement in earnings ($1.27 versus $1.09).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Independent Power Producers & Energy Traders industry. The net income increased by 344.8% when compared to the same quarter one year prior, rising from -$58.00 million to $142.00 million.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 16.2%. Since the same quarter one year prior, revenues slightly dropped by 6.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- The gross profit margin for AES CORP is currently lower than what is desirable, coming in at 25.58%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 3.56% is above that of the industry average.
- The debt-to-equity ratio is very high at 5.07 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, AES maintains a poor quick ratio of 0.77, which illustrates the inability to avoid short-term cash problems.
- You can view the full analysis from the report here: AES Ratings Report