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Algonquin Power (New York Stock Exchange:AQN) is down slightly in trading on Monday after giving back early session gains that followed Wells Fargo's addition of the stock to its Q3 Tactical Ideas List, reiterating its Overweight rating and $8.50 price target while seeing likely selling of The company's renewable energy platform as a potentially significant catalyst.
Analyst Neil Kalton says he likes the setup for Algonquin Power (AQN) heading into the third quarter, a quarter in which investors could finally get clarity on the strategic review of the renewables business.
Kalton says the stock price reflects a pessimistic estimate of low selling prices for renewables and believes the platform could generate about $2.4 billion in profits, which could be used to recapitalize the company.
All signs point to Algonquin Power (AQN) announcing a sale of the company’s unregulated renewable assets, potentially in the third quarter, the analyst says, estimating net proceeds of ~$2.35 billion, or 10.5x estimated normalized EBITDA of $225 million, and believing market conditions have improved for the renewables platform since the process was announced late last year.
Assuming a sale, Algonquin Power (AQN) will become a regulated utility with 90% of the rate base in the U.S. and Canada, and combined with the estimated net proceeds of ~$775 million from the pending sale of its stake in Atlantic Sustainable, Kalton believes Algonquin will be able to announce a ~$1 billion share repurchase.
