On Monday, TD (TSX:TD) Securities adjusted its outlook on Algonquin Power (TSX:AQN) & Utilities Corp. (NYSE:AQN), increasing the stock's price target to $6.50 from the previous $6.00, while sustaining a Hold rating on the shares. The adjustment reflects a more optimistic valuation of the company's ongoing initiatives, including the potential sale of its renewable energy assets.
Algonquin Power, which has not provided earnings guidance for 2024, is in the process of selling its non-regulated power segment. The company's interim CEO, Chris Huskilson, has indicated that while there has been no significant news on the renewable sale process, the lack of updates should be considered positive. He remains confident in the plan to reach an agreement by mid-year and finalize the transaction by late 2024.
Analysts from TD Securities believe that the sale could yield net proceeds between $1.6 billion and $2.3 billion, based on a valuation range of 9.5x to 11.5x 2025E normalized EV/EBITDA. Algonquin's portfolio includes a net capacity of 2.7 GW and an extensive project pipeline.
Management's efforts to streamline the company's operations were also highlighted, mentioning strategies such as consolidating joint ventures, divesting non-core assets, and adopting new technology platforms to enhance integration across business segments.
The company's reinvestment plan for its regulated utility segment is expected to be on par with 2023's investment of $742 million, which included $395 million allocated for rate-base growth. This rate-base growth represents the lowest growth-to-maintenance ratio since 2018.
The revised price target by TD Securities takes into account the fourth quarter results of 2023 and the potential impact of the company's restructuring initiatives, including the sale of its renewable power platform and equity stake in Atlantica.
Although the HOLD recommendation remains unchanged, the increased target price reflects a reduced sum-of-the-parts discount as Algonquin Power progresses with its strategic sale of the renewable platform.
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