The AES CorporationAESNYSE
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DCF Valuation

DCF Valuation Summary
Strong Buy
Fair Value: $27.58 per share(market-calibrated)
+94.5%
Upside to Fair Value
Current
$14.18
Pure Model
$28.19
Fair Value
$27.58
Bull Case
$32.42
Bear Case
$24.05
Market Reality Check
Model Terminal Growth
2.00%
Market-Implied Growth
0.69%
Calibrated Growth
1.54%
Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $28.19.
What's Driving This Ratingfor AES
CapEx normalizing toward maintenance
Historical CapEx is 45.31% of revenue (heavy investment phase). Model fades this to 5.00% by Year 10, freeing up ~$5.7B in annual FCF. This is the biggest driver of long-term cash flow improvement.
Premium margins already priced in
EBIT margin of 28.97% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.
Moderate revenue growth
Analyst consensus projects 2.49% revenue growth, fading to 2.00% by Year 10. Revenue reaches $14.2B (vs $12.2B today).
Perpetuity and exit methods disagree
Perpetuity growth gives $17.38/share (11.6x terminal FCF) while exit multiple gives $39.00/share (22.6x terminal FCF). The 16x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.00% growth is more conservative. The base case averages both methods.
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Market pricing in lower growth than model
The market implies only 0.69% perpetual growth — 131bps below the model's 2.00%. This suggests the market sees headwinds or risks not in the model.
Strong cash flow conversion
Year 10 FCF/EBITDA conversion of 70.89% indicates efficient cash generation. FCF reaches $3.9B by Year 10 (27.44% FCF margin).
Weighted Average Cost of Capital (WACC)
Cost of Equity (CAPM)
Risk-Free Rate (Rf)4.50%
Beta (β)0.94
Market Risk Premium4.50%
*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)
Cost of Equity (Re)8.71%
Cost of Debt
Pre-tax Cost of Debt17.60%
Tax Rate21.00%
After-tax Cost of Debt13.90%
Equity Weight (E/V)59.25%
Debt Weight (D/V)40.75%
WACC Calculation
WACC = (E/V × Re) + (D/V × Rd × (1-Tc))
WACC = (59.25% × 8.71%) + (40.75% × 13.90%)
= 10.83%
10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)
YearYear 1Year 3Year 5Year 7Year 10
Revenue$12.5B$12.4B$12.9B$13.4B$14.2B
EBIT$3.6B$3.6B$3.7B$3.9B$4.1B
Tax$763M$754M$784M$816M$866M
NOPAT$2.9B$2.8B$3.0B$3.1B$3.3B
+ Depreciation$1.2B$1.2B$1.3B$1.3B$1.4B
- Capex$5.7B$4.5B$3.5B$2.5B$712M
- Δ NWC$29M-$38M$24M$25M$26M
Free Cash Flow-$1.6B-$424M$651M$1.9B$3.9B
Discount Factor0.9020.7350.5980.4870.358
Present Value-$1.5B-$312M$389M$915M$1.4B
FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital
Terminal Value Calculation
Perpetuity Growth Method
Year 10 FCF$3.9B
Terminal Growth Rate2.00%
WACC10.83%
TV = FCF₁₀ × (1+g) / (WACC-g)
Terminal Value$45.2B
PV of Terminal Value$16.2B
Exit Multiple Method
Year 10 EBITDA$5.5B
Exit Multiple (EV/EBITDA)16.0x
TV = EBITDA₁₀ × Exit Multiple
Terminal Value$88.2B
PV of Terminal Value$31.5B
Valuation Summary
Perpetuity Growth Method
PV of Projected FCFs$3.2B
PV of Terminal Value$16.2B
Enterprise Value$19.3B
(-) Net Debt$6.9B
Equity Value$12.4B
Shares Outstanding712M
Price per Share$17.38
Exit Multiple Method
PV of Projected FCFs$3.2B
PV of Terminal Value$31.5B
Enterprise Value$34.7B
(-) Net Debt$6.9B
Equity Value$27.8B
Shares Outstanding712M
Price per Share$39.00
Pure Model Fair Value
$28.19
Average of perpetuity growth and exit multiple methods (before market calibration)
Sensitivity AnalysisPrice per Share
WACC ↓ / Growth →1.00%1.50%2.00%2.50%3.00%
8.83%$37.66$38.78$40.06$41.54$43.28
9.83%$31.81$32.62$33.52$34.55$35.73
10.83%$26.94$27.53$28.19$28.93$29.77
11.83%$22.80$23.25$23.74$24.29$24.90
12.83%$19.24$19.59$19.96$20.38$20.83
How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.
Scenario Analysis
Bear Case
$24.05
69.6% vs current
  • -25% vs analyst consensus
  • Terminal growth: 2.0%
  • Beta: 1.17
Base Case
$28.19
98.8% vs current
  • Analyst consensus
  • Terminal growth: 2.0%
  • Beta: 0.94
Bull Case
$32.42
128.6% vs current
  • +25% vs analyst consensus
  • Terminal growth: 2.5%
  • Beta: 0.80
Key Assumptions & DriversUtilities Sector
Growth Assumptions (Select Years)
Year 1 Revenue Growth2.49%
Year 3 Revenue Growth-3.14%
Year 5 Revenue Growth2.00%
Year 7 Revenue Growth2.00%
Year 10 Revenue Growth2.00%
Terminal Growth Rate2.00%
Margin & Efficiency
Current EBIT Margin28.97%
Tax Rate21.00%
Historical Capex / Rev45.31%
Terminal Capex / Rev5.00%
NWC / Revenue9.41%
Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.
Institutional-Grade Methodology
Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta
Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 16x EV/EBITDA (Utilities sector)
This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.