New Rating!!!!! GLTALongs TD Investment Algonquin Power & Utilities Corp. (AQN-N, AQN-T) US$7.96 | C$10.92 Q4 EPS Top End of Guidance; Awaiting Clarity on Kentucky PowerEvent Algonquin reported Q4/22 results on March 17 before market open.
Adjusted EPS of $0.22, including $0.08 of gains on asset sales, exceeded our forecast of $0.19 and was at the high end of guidance. Management reiterated the 2023 EPS guidance range and its intent to close the Kentucky Power acquisition. Impact: NEUTRAL We attribute Friday's positive share-price reaction to the headline beat and some investors' optimism that Algonquin will be able to walk away from the Kentucky Power acquisition. We continue to include this acquisition in our estimates and valuation.
Management reiterated its commitment to completing the $2.6 billion Kentucky Power acquisition. This transaction is pending expedited regulatory approval from FERC after Algonquin and AEP (the seller) refiled an amended submission on February 14. We include this acquisition in our estimates, but continue to monitor April 26, 2023 as the 18-month outside date provided in the initial agreement with AEP.
The 2023 EPS target range of $0.55-$0.61 is unchanged. We expect relatively flat EPS in 2024 relative to 2023, and believe that the consensus estimate of $0.63 is optimistic. Management previously cited a long-term "north star" EPS growth target of 5-8%, which we consider aspirational, given mid-term headwinds.
Algonquin's capital spending budget for 2023 is $3.6 billion, including the Kentucky Power acquisition. Of this total, only ~$325 million is earmarked for rate base growth investments for the legacy regulated platform (~54% of the previous six-year average for this bucket). The company exited 2022 with available liquidity of $2.3 billion. Assuming that the Kentucky Power acquisition progresses, we expect that Algonquin will need to access the hybrid debt market to bridge funding gaps ahead of targeted non-regulated asset sales.
We are raising our target price to $8.00 from $7.50, reflecting de-risking progress for non-regulated power developments in our NAV calculation. Our HOLD rating is unchanged. TD Investment Conclusion We reiterate our HOLD rating. In our view, Algonquin's valuation discount is warranted by its compromised earnings base and constraints on regaining growth momentum.