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Freaky discloses, at the time of publishing this video, he does have an active position in Algonquin. In fact, this position is shown expressly within the video. However, he may buy or sell into this position at any time after publishing.
#stocks #Utility #dividendstocks #renewableenergy #investing
Like many Utilities AQN was a bulk up cost of capital play. Basically this strategy relies on growing as quick as possible, across as many geographies as possible. In doing this, companies would have higher P/E's (due to higher growth rates) as well as lower cost of capital from debt issuance with the perceived regulatory risk more diversified away by being across more regulatory regimes. However with interest rates starting to increase, investors decided AQN was growing too much too quick at too high a floating debt level. Regardless if true or not, this lead to the company's share price decreasing leading to further cost of capital increases on the equity side for the company. This increase in cost of capital further lead to a lack of future growth which further increased the cost of capital on the equity side. Aka both the r increase and the g decreased at the same time for AQN leading to severe multiple compression.
We have recently seen what happens to a company that goes from a bulk up strategy winner to a bulk up strategy loser as the cost of capital rate of change feeds upon itself.
For AQN this was further amplified by a higher % of its EBITDA being generated from the renewable business overtime. Unfortunately in the latest quarters we have seen the renewable business decline YoY in EBITDA generation as less wind power was generated across their sites in the US. This further led to a rate of change slowdown in EBITDA growth while EPS was already under pressure due to ever increasing interest rate expense.
Currently AQN is in the process of selling off its renewable business, which should decrease the volatility of the earnings overtime and enable AQN to solidify the balance sheet and additionally enable them to use some of the proceeds to buy back shares at a severely depressed level (relative to its historical multiple or even peers which are also selling off at this time).
Utilities continue to be out of favor at the time of writing due to their bond proxy behavior, and while that may not change in the short term, its likely over the long term this large sharp pullbacks in various utilities are likely going to lead to long term opportunities in the Utility space. Only time will tell.
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I am not a CPA, attorney, insurance, contractor, lender, or financial advisor. The content in these videos shall not be construed as tax, legal, insurance, construction, engineering, health & safety, electrical, financial advice, or other and may be outdated or inaccurate; it is your responsibility to verify all information yourself. I am a man in a mask. This is a YouTube video for entertainment purposes ONLY. IF stocks or companies are mentioned, Freaky MAY have an ownership interest in them -- DO NOT make buying or selling decisions based on Freaky's videos. If you need advice, please contact a qualified CPA, attorney, insurance agent, contractor/electrician/engineer/etc. financial advisor, or the appropriate professional for the subject you would like help with.
