Do Analysts Expect The AES Corporation (AES) to Improve Its Profit Margins in 2024?

We recently compiled a list of the 10 Best Robinhood Stocks Under $20. In this article, we are going to take a look at where The AES Corporation (NYSE:AES) stands against the other Robinhood stocks.

The market reacted favorably after the Federal Reserve’s June 11-12 meeting. The broader market marked record closes. At the June 12 press conference, Fed Chairman Jerome Powell emphasized the Fed’s focus on its dual mandate of achieving maximum employment and stable prices. While the labor market remains strong with continued job gains and low unemployment, inflation has decreased significantly from its peak but remains above the 2% target, currently at 2.7% and the Federal Open Market Committee (FOMC) believes it’s still high.

Key Developments

The Fed Chairman reported that GDP growth slowed from 3.4% in Q4 of 2023 to 1.3% in Q1 of  2024. However, underlying demand indicated by private domestic final purchases grew at 2.8%. Consumer spending has moderated but remains solid, and investment in equipment and intangibles has improved. Moreover, the labor market is balanced, with job gains averaging 218,000 per month in April and May, and the unemployment rate was at 4%. Inflation, as measured by PCE prices, rose 2.7% over the past year, while core PCE rose 2.8% and the CPI rose 3.3% in May, with the core CPI at 3.4%. Finally, the FOMC decided to keep the federal funds rate unchanged at 5.25% to 5.5% and to continue reducing securities holdings to manage inflation.

Powell emphasized a cautious approach to policy adjustments. The Chairman said that while some progress has been made toward the inflation target, more data is needed to ensure inflation is sustainably moving toward 2%. The Fed will continue to assess economic data and adjust policies as needed to support their dual mandate. He reiterated the commitment to restoring price stability to ensure long-term economic health. The Fed chair noted that the median projection for the federal funds rate by FOMC participants is 5.1% by the end of 2024 if the “economy evolves as expected.” Nevertheless, Jerome Powell highlighted that the projections are not a guarantee and will depend upon the data in the coming months.

The CME’s FedWatch tool reveals that 35.8% of the market expects the interest rates to remain the same in September, 59.2% expect a 25 basis points (bps) reduction, and 5% believe in a 50 bps rate cut. These numbers have risen significantly in favor of rate cuts since we reported them on May 31 in our article about the best up-and-coming stocks.

After a long wait, the Fed has finally hinted at potential rate cuts in September, which brings tons of opportunities in the market. Let’s take a look at some now.

Our Methodology

For this article, we used the app to identify over 100 stocks with a $2 billion market cap that were trading under $20, as of June 12. We narrowed down our list to the stocks with positive hedge fund sentiment, analyst ratings, and optimistic prospects and chose the 10 stocks with the highest number of institutional investors.

Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

An executive in a power plant control booth overseeing the efficient energy production.

The AES Corporation (NYSE:AES)

Number of Hedge Fund Holders: 45

Share Price as of June 12: $19.66

The AES Corporation (NYSE:AES) is a Virginia-based diversified power generation and utility company that provides its services through its subsidiaries, including Indianapolis Power and Light Company, AES Solutions Management, LLC, AES Laurel Mountain, and more. Hedge fund sentiment was positive toward The AES Corporation (NYSE:AES) in the first quarter as hedge funds with investments in the stock were 45 in the quarter, with positions worth $1.25 billion. This is compared to 35 funds with positions worth $913.071 million in the preceding quarter. Orbis Investment Management is the top investor in the company as of March 31 and holds a position worth $415.3 million.

The biggest growth catalyst for The AES Corporation (NYSE:AES) is its integration into AI. AES’s strategic positioning as a major energy provider to technology companies and data centers is noteworthy. With nearly 6 GW of long-term contracts directly with tech giants like Google, Microsoft, and Amazon, and an additional 500 MW with utilities for data center customers, AES is crucial in supporting the tech sector’s renewable energy commitments.

According to Goldman Sachs, the power demand in the US will rise at a compound annual growth rate of 2.4% between 2022  and 2030 and 0.9% of it will be accounted for by data centers, The AES Corporation (NYSE:AES) is well-positioned to meet this demand with its extensive renewable energy projects, particularly wind and solar, coupled with energy storage solutions. The company is expected to add 3.6 GW of new capacity in 2024, with 92% of the necessary major equipment on site. Including a 15-year contract with Amazon to add 1 GW of solar and storage, The AES Corporation’s (NYSE:AES) backlog of projects is now 12.7 GW.

According to analysts’ estimates, The AES Corporation (NYSE:AES) is expected to improve its profit margins in 2024 as its non-GAAP EPS is expected to grow from $1.76 per share in 2023 to $1.92 in 2024. AES is currently trading at 10 times its forward earnings. Considering the 16x peer average and also the fact that its earnings will grow by about 9% this year, AES is cheap at current levels.

On March 31, Argus raised the price target on The AES Corporation (NYSE:AES) to $28 from $25 and kept a buy rating.

Overall AES ranks 4th on our list of the best Robinhood stocks to buy. You can visit 10 Best Robinhood Stocks Under $20 to see the other Robinhood stocks that are on hedge funds’ radar. While we acknowledge the potential of AES as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AES but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

Read Next: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.

Disclosure: None. This article is originally published at Insider Monkey.