Long-established in the Utilities - Independent Power Producers industry, Algonquin Power & Utilities Corp (AQN, Financial) has enjoyed a stellar reputation. However, it has recently witnessed a daily loss of 3.74%, juxtaposed with a three-month change of -24.38%. Fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Algonquin Power & Utilities Corp.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 3/10
- Profitability rank: 6/10
- Growth rank: 4/10
- GF Value rank: 4/10
- Momentum rank: 2/10
Based on the above method, GuruFocus assigned Algonquin Power & Utilities Corp the GF Score of 62 out of 100, which signals poor future outperformance potential.
Algonquin Power & Utilities Corp: A Snapshot
Algonquin Power & Utilities Corp, a parent company of Liberty, is a diversified international generation, transmission, and distribution utility with over $16 billion of total assets. Through its two business groups, the Regulated Services Group and the Renewable Energy Group, AQN is committed to providing safe, secure, reliable, cost-effective, and sustainable energy and water solutions through its portfolio of electric generation, transmission, and distribution utility investments to over one million customer connections, largely in the United States and Canada. AQN provides renewable energy through its portfolio of long-term contracted wind, solar, and hydroelectric generating facilities.
Financial Strength Analysis
Algonquin Power & Utilities Corp's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 1.42 positions it worse than 75.63% of 316 companies in the Utilities - Independent Power Producers industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Score is just 0.29, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.01 indicates a struggle in handling existing debt levels. Furthermore, the company's debt-to-Ebitda ratio is 18.69, which is above Joel Tillinghast's warning level of 4 and is worse than 90.79% of 315 companies in the Utilities - Independent Power Producers industry. Tillinghast said in his book “Big Money Think's Small: Biases, Blind Spots, and Smarter Investing” that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Growth Prospects
A lack of significant growth is another area where Algonquin Power & Utilities Corp seems to falter, as evidenced by the company's low Growth rank. Over the past five years, Algonquin Power & Utilities Corp has witnessed a decline in its earnings before interest, taxes, depreciation, and amortization (EBITDA). The three-year growth rate is recorded at -34.1, while the five-year growth rate is at -12.3. These figures underscore potential challenges in the company's profitability. Lastly, Algonquin Power & Utilities Corp predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
Given the company's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. While Algonquin Power & Utilities Corp has a rich history and a diverse portfolio, its current financial and growth indicators suggest that it may struggle to maintain its past performance. Investors should consider these factors when making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
