The AES Corporation (AES - Analyst Report) recently gave an update on its portfolio management activities and revised its earnings per share (EPS) guidance.
Under its portfolio management activity, the company has entered into an agreement to sell a majority stake in 1,199 MW gas-fired generation businesses in Spain for $234 million. Integral to the transaction, the company signed a share purchase and option agreement with GDF Suez S.A. ("GdFS"), in October this year, for the sale of 80% of its interest in a wholly owned holding company that holds a 70.81% interest in AES Energia Cartagena ("Cartagena"). Subject to customary regulatory and lender approvals, the sale is expected to close by the end of 2011.
Besides, the company has closed the sale of its Telecom businesses in Brazil. In October, Brasiliana, one of AES' Brazilian subsidiaries, settled on the sale of its telecommunications businesses for approximately $900 million. Brasiliana expects to utilize approximately $480 million from the proceeds to repay expensive non-recourse debt.
The company has also approved the sale of its Argentine distribution businesses, Edelap and Edes, and a small generation plant there. As a result of this divestiture, the company expects to book a pre-tax loss of about $360 million. The company expects the deal to be closed in the fourth quarter of 2011.
The portfolio reorganization plans are all geared toward improving the credit profile of the company as proceeds from non-core asset sale would help to pay down debt. Additionally, the company is also executing on its core and growth markets strategy, accelerating cost-saving programs and working to close the acquisition of DPL Inc. . The company expects the acquisition to close in the fourth quarter of 2011 or the first quarter of 2012.
The company reaffirmed that it is on track to meet its adjusted EPS fiscal 2011 guidance of 97 cents to $1.03. It is also confident of achieving its 2012 adjusted EPS and cash flow guidance. However, it revised its 2011 forecast for diluted EPS from continuing operations to 93 cents to 99 cents from its previous range of 63 cents to 69 cents. This includes the impact of non-cash asset impairments recorded in the third quarter of 2011.
AES Corporation boasts of a highly diversified earnings base. Geographic disparity in its target markets has resulted in a portfolio that is well positioned for capitalizing on regional differences in power prices and weather-driven demand. However, these positives are dampened by factors like commodity price risk and currency volatility. The company presently retains a short-term Zacks #2 Rank (Buy). We have a long-term Neutral recommendation on the stock.