AES Corporation’s AES shares are down 41% in a year against 8.4% growth delivered by its industry and 5.8% rise by its sector. The stock also underperformed the Zacks S&P 500 composite’s one-year return of 11.2%.Zacks Investment Research

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Other industry players, such as CenterPoint Energy CNP and Consolidated Edison ED, however, have delivered a solid performance on the bourses. CNP and ED shares have risen 22.8% and 2.4%, respectively, over the past year.

With AES staggering on the bourses, individuals may rush to divest this stock from their portfolio. However, before making any hasty decision, it would be prudent to take a look at the reasons behind its dismal performance in the share market, does it have the ingredients to rebound and if not, then what are the risks that pose a threat to this stock. The idea is to help investors make a more insightful decision.

Reasons Behind AES’ Downtrend

AES’ disappointing performance on the bourses seems to have been influenced by the its dismal first-quarter 2025 results and poor financials.

The company ended the first quarter on a dismal note, with both its earnings and revenues having missed the Zacks Consensus Estimate by 27% and 8.7%, respectively. Its earnings and revenues also declined year over year. This might have hurt investor confidence in the stock and was duly reflected in its share price performance.

Moreover, as of March 31, 2025, AES Corp. had a long-term debt of $26.41 billion, while its current debt was $4.18 billion. The company’s cash equivalents, worth $2.55 billion as of March 31, 2025, remained much lower than both its long-term and current debt levels. This, signaling AES’ weak solvency position, is likely to have caused further loss of interest in this stock from its investors and resulted in its price loss.

Further, in April 2025, Jefferies downgraded AES' stock rating from Buy to Hold and reduced its price target, citing its weaker balance sheet performance as the primary reason behind such a stance. Such rating downgrade further makes investors cautious before investing in a stock.

Will AES Stock Rebound?

The expanding adoption of renewables as the preferred source of electricity generation is offering profitable incentives for utility providers like AES Corp., CenterPoint Energy and Consolidated Edison to enhance their renewable energy portfolio significantly. In line with this strategy, AES completed the construction of 643 megawatts (MW) of solar and energy storage projects during the first quarter of 2025 and aims to add a total of 3.2 gigawatts (GW) of new renewables to its operating portfolio by the end of this year.

The company has also been rapidly retiring its coal-fired units, thereby reducing carbon emissions from its portfolio. It intends to exit a major portion of its remaining coal facilities by year-end 2025.

AES also undertakes significant initiatives to reap the benefits of growth prospects in the liquefied natural gas (LNG) market. It has long-term contracts to supply regasified LNG to industrial users and third-party power plants, meeting growing demand from those shifting to natural gas.

Such renewable expansion plans should bode well for AES stock, which is further supported by its favorable earnings estimates and attractive valuations.

Story Continues

AES’ Upbeat Estimates

The Zacks Consensus Estimate for AES’ 2025 and 2026 earnings per share has moved up 4.83% and 3.20%, respectively, in the past 60 days. These upward revision indicates analysts’ increasing confidence in the stock’s earnings generation capabilities. The estimates also reflect solid year-over-year growth.Zacks Investment Research

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The Zacks Consensus Estimate for AES’ 2025 and 2026 revenues is pegged at $12.74 billion and $13.35 billion, respectively, indicating year-over-year growth of 3.8% and 4.8%.Zacks Investment Research

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AES Shares Trading at a Discount

AES shares are somewhat inexpensive on a relative basis, with its forward 12-month Price/Earnings (P/E F12M) being 5.70X compared with its industry average of 14.62X.

However, its industry peers, Consolidated Edison and CenterPoint Energy, are trading at a premium. ED is trading at a P/E F12M of 17.23X, while CNP is trading at a P/E F12M of 20.37X.Zacks Investment Research

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Risks to Consider Before Investing in AES Stock

Electricity prices in the wholesale market have dropped in recent years. This is mainly because of more renewable energy, cheaper natural gas and better demand control. Many new renewable energy deals are also being signed at lower prices than before. This trend is likely to continue and could hurt the company’s financial performance.

Additionally, AES’ hydro power plants depend on water levels, which are affected by weather. In countries like Panama, Brazil, Colombia and Chile, dry weather can lower water inflows. This can lead to less electricity production and higher electricity prices. If AES can't produce enough energy, it may have to buy energy to meet its contracts, which could harm it.

Moreover, the company is highly debt ridden as evident from the image below that reflect its long-term debt-to-capital ratio, which when compared with its industry reflects quite a higher value.Zacks Investment Research

Image Source: Zacks Investment Research

Conclusion

Investors interested in AES should wait for a better-entry point considering its high debt value and dismal performance on the bourses. However, those who already own this Zacks Rank #3 (Hold) stock may continue to do so taking into account its discounted valuation, upbeat earnings estimate revision and renewable energy expansion plans that offer long-term growth prospects.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Consolidated Edison Inc (ED):Free Stock Analysis Report

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This article originally published on Zacks Investment Research (zacks.com).

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