Algonquin Power & Utilities Corp. (TSE: AQN) (NYSE: AQN) reported Q3-2022 earnings results earlier today that left investors unimpressed. While revenue beat expectations, earnings per share (EPS) missed estimates, and the company lowered its outlook for the rest of the year due to inflation and higher interest rates. Its guidance even implies that its dividend is not the safest. As a result, the stock finished down almost 20%. Please note that the following figures are in U.S. dollars unless otherwise stated.
Algonquin Power’s revenue rose to $666.7 million (a 26% year-over-year increase), which beat expectations by 8.4%. However, its adjusted earnings per share were $0.11, less than the $0.17 consensus estimate and less than last year’s adjusted EPS of $0.15.
Nonetheless, Algonquin Power’s adjusted EBITDA rose 10% year-over-year to $276.1 million, and its adjusted funds from operations (cash flow from operations plus changes in non-cash operating items and acquisition-related costs) rose by 21% to $205.5 million.
Meanwhile, the company’s adjusted earnings per share of $0.11 weren’t enough to cover the $0.18 per share dividend for the quarter.
Algonquin Power Lowers 2022 Guidance, Putting Its Dividend at Risk
AQN provided full-year 2022 guidance. It expects its EPS to be between $0.66 to $0.69 compared to its previous estimates of $0.72 to $0.77. These earnings estimates won’t be enough to cover the company’s $0.72 per share dividend (annualized). Still, Algonquin paid about $96.5 million in dividends for the quarter. These dividends were covered by the company’s adjusted funds from operations of $205.5 million and cash from operations of $102.9 million. However, free cash flow, measured as cash from operations minus capital expenditures, was negative, as the company is heavily investing in itself. Therefore, Algonquin’s dividend safety varies depending on which metric you prefer to use.
AQN expects to update investors about its longer-term targets in early 2023.
Is AQN Stock a Buy, According to Analysts?
Analysts are cautiously optimistic about AQN stock, as it has a Moderate Buy consensus rating based on three Buys, two Holds, and one Sell rating assigned in the past three months. The average Algonquin Power & Utilities stock price target of C$18.67 implies 51.3% upside potential.
Conclusion: AQN’s Earnings Were Disappointing
While revenue beat analysts’ expectations, an earnings miss and lower earnings guidance were enough to send the stock crashing down. Also, its dividend may not be covered on an earnings basis this year, which is likely to be unsettling for dividend investors. Nonetheless, after the sell-off, AQN stock yields close to 7.7%.
