AES — The AES Corporation

As of 2026-09-13 the tape is a textbook merger-arb flatline: RSI(14) at 54.4, price within 0.18% of its 20-day SMA, 0.25% of its 50-day and 1.20% of its 200-day, with a 1-week return of 0.0% and only +0.75% over three months. Wall Street has fully capitulated to the deal — 12 Holds, 9 Buys, zero Sells, price targets clustered at $15.00-$15.71 — after Morgan Stanley, Mizuho and Barclays all cut to Equal-Weight/Neutral. Sentiment is neither bullish nor bearish on the business; the market is simply waiting on FERC and state regulators, and the thin 1.4% spread implies a modest but non-zero probability of a broken deal. The one live irritant is regulatory politics: Indiana's rehearing on a $71M AES Indiana rate hike and organized consumer-group opposition to the buyout.

Revenue growth genuinely reaccelerated: YoY growth ran +1.9% (Q3 2025), +4.7% (Q4 2025), +8.7% (Q1 2026) and +19.9% (Q2 2026, $3,422M vs $2,855M). Operating income followed, with Q2 2026 at $630M (+56% YoY) on an 18.4% operating margin versus 14.2% a year earlier, after +600bp YoY in Q1 2026 and +540bp in Q4 2025; the lone bad quarter was Q3 2025, when margin slipped to 16.5% from 20.2%. EPS is noisy around below-the-line items: Q2 2025 posted a -$0.15 loss (a $105M net loss despite $405M of operating income) against +$0.60 in Q2 2026, and TTM diluted EPS of ~$2.63-2.68 sits above next-FY consensus of $2.289. The most important structural trend is cash: the trailing-four-quarter FCF deficit has narrowed from -$5.64B (through Q2 2024) to -$2.55B (through Q2 2025) to -$1.72B (through Q2 2026), though FCF was still negative in all 12 quarters shown and Q2 2026 alone was -$597M on $1,643M of capex. Caution flag: stockholders' equity jumped +78% in Q4 2025 ($3,865M to $6,887M) then fell back to $4,942M by Q2 2026 — that is a non-organic capital event, not earnings, and it distorts any trend line spanning it.

As of 2026-09-13 the headline numbers scream cheap — 5.62x TTM P/E, 0.066 PEG, 6.46x forward P/E on the $2.289 next-FY estimate, 0.81x P/S versus a 1.11x 5-year average, and a 4.79% dividend yield. Don't take the bait. The P/E is an artifact of a deal-capped $14.79 price divided by TTM EPS flattered by below-the-line gains (TTM net income of $1,908M against TTM operating income of $2,282M, despite $2.5B+ of annual interest expense on $28.66B of long-term debt) — earnings quality, not earnings power — and the 22.94x 5-year average P/E (only 3 years used) is not a comparable anchor. On the metric that actually works for a capital-intensive utility, EV/EBITDA of 9.06x is roughly in line with diversified utility peers: fair, not cheap. The honest conclusion is that this is not a valuation story at all — the equity is worth ~$15.00 if the deal closes and ~$11.50-12.00 if it breaks.

The price stopped tracking earnings the moment the GIP/EQT agreement was signed; it now tracks deal-close probability. Forward EPS of $2.289 is a footnote — a buyer at $14.79 is underwriting a regulatory approval, not a growth story. The trap for a screen-driven investor is the 5.6x P/E, which looks like a turnaround being underpriced when it is really a capped, cash-settled stub with a 20%-plus left tail. Conversely, if the deal broke, the improving trend (four straight quarters of YoY revenue acceleration, ~500bp of YoY margin expansion in three of the last four quarters, an FCF deficit cut by roughly two-thirds) would be the bull case worth re-underwriting at $11-12 — but that is a post-break trade, not a reason to pay $14.79 today.

As of 2026-09-13, RSI(14) was 54.4 — dead neutral, no momentum signal in either direction. Price sat 0.18% above the 20-day SMA, 0.25% above the 50-day and 1.20% above the 200-day, meaning all three moving averages are compressed into roughly a 1% band around spot. Returns confirm the dormancy: 0.0% over 1 week, +0.54% over 1 month, +0.75% over 3 months, +4.23% over 6 months, with the $12.33-$17.65 52-week range mostly pre-deal history. Technically there is nothing to trade here — expect chop between roughly $14.50 and $15.00 until regulatory news lands, and treat any dip toward the low $14s as a deal-probability repricing rather than an oversold entry.

• Interest rates and refinancing: AES carries $28.66B of long-term debt (up from $23.63B in Q3 2023) and priced a $1B senior notes offering on 2026-06-11 to refinance; each 100bp matters to both standalone EPS and the buyer's deal economics.
• Utility regulation: the transaction needs FERC plus state commission clearance, and the climate has turned hostile — Indiana regulators ordered a September 2026 rehearing on a $71M AES Indiana rate hike after public backlash, and consumer groups have formally opposed the buyout.
• AI/data-center power demand: structurally bullish for AES's renewables pipeline and utility load growth (e.g. Google's Monrovia, IN facility), but it is also the proximate cause of the ratepayer-affordability fight now complicating the company's regulatory standing.
• Private-equity ownership of regulated utilities: state-level political resistance to PE ownership is a live approval risk and a template that has slowed comparable infrastructure buyouts.
• Renewables policy and tax equity: project economics still hinge on IRA credit transferability and tax-equity supply, which drive the asset-recycling program that funds AES's capex gap.

• FERC and state utility commission rulings on the GIP/EQT acquisition — management guides to a close in late 2026 or early 2027; the stock does essentially nothing until these land.
• Q3 2026 earnings on 2026-11-03 (consensus EPS ~$0.70) — only matters if it changes standalone value in a deal-break scenario.
• Indiana IURC rehearing on the $71M AES Indiana rate hike, a read-through on regulator appetite for the deal.
• A revised/higher bid or a deal break — the tail event that would reset the stock toward $11.50-12.00.
• Continued FCF improvement (Q4 2025 was already the best quarter in the series at just -$47M) — relevant only if the deal fails.

• Deal break or regulatory denial: with roughly an 87% close probability, the downside case is ~$11.50-12.00 (near the $12.33 52-week low) — a 20%+ drawdown against a 1.4% gross upside.
• Leverage and liquidity: D/E of 6.5x, $28.66B of long-term debt, a current ratio of 0.746, and $8.58B of current liabilities against only $6.40B of current assets.
• Persistently negative free cash flow: -$597M in Q2 2026 and negative in all 12 quarters shown, with quarterly capex of $1.6-1.8B versus operating cash flow of $1.0-1.2B.
• Earnings quality: TTM net income of $1,908M against TTM operating income of $2,282M, despite $2.5B+ of annual interest expense, implies substantial below-the-line gains — the 5.62x P/E is not a real earnings multiple.
• Low returns on capital: ROIC of 4.2% suggests growth is not earning its cost of capital, which is why debt keeps climbing.
• Timing and financing risk: returns dilute if close slips past early 2027, and $28.7B of debt must eventually be refinanced regardless of who owns the company.

Not a good investment for a fundamental investor right now, and not a compelling short either — it simply is not that kind of stock anymore. AES at $14.79 is a ~1.4% gross spread to a $15.00 cash offer whose shareholder vote is already done (2026-06-26) but whose FERC and state approvals are not; my probability-weighted fair value of about $14.40 sits slightly below the market price. That is close to a T-bill return with a 20%-plus tail if regulators balk — bad skew, not a bargain. The genuine silver lining is that the underlying business is improving (FCF deficit down from -$5.6B to -$1.7B annualized, revenue growth accelerating to ~20% YoY), which is worth remembering only if the deal breaks.

Probability-weighted merger-arb valuation: 87% x $15.00 cash consideration plus 13% x $11.50 break value = $14.55 expected payoff, discounted ~1% for the ~4-5 months to a late-2026/early-2027 close, giving ~$14.40. The $11.50 break value is derived from ~8.5x TTM EV/EBITDA (~$4.28B EBITDA on roughly $28B net debt across ~713M shares), i.e. back near the $12.33 52-week low and pre-bid standalone levels; the 87% weight reflects an already-completed 2026-06-26 shareholder vote set against remaining FERC/state approvals and organized consumer opposition.