Can Algonquin Power Shoot the Lights Out?

It’s not often that a stock jumps almost 7% in a single day because of an analyst upgrade. Nevertheless, that’s what happened on October 1 when Desjardins published a note about Algonquin Power & Utilities (“AQN”). 

“We are upgrading AQN to ‘Buy’ from ‘Hold,’ largely due to compelling valuation following recent weakness, strong management, and greater confidence AQN can achieve guidance,” wrote Desjardins’ Brent Stadler.

The last few years are best left behind us. The company cut its dividend twice, divested unpopular assets, issued too many shares, and cycled through four CEOs since the pandemic.

Things got so rough that activist investor Starboard acquired a 9% stake to push for change.

We agree with Desjardins that this stock is a buy. With renewable power assets sold, it’s a pure-play regulated utility operating electric, gas, and water infrastructure in Missouri, New Hampshire, Arizona, New York, and California.

CEO Rod West, who joined the company last March, is the right person for the job.

West issued 3-year guidance several months ago, which we expect the company to meet. Through cost-cutting and rate-based revenue growth, earnings per share are poised to grow 16% in 2026 and 22% in 2027. The market also welcomed management’s commitment not to issue new shares through 2027.

With a price-to-earnings ratio of 16x (2026) and 13x (2027) earnings, the stock currently trades at roughly a 20% discount when compared to its historical valuation.

While the current guidance is solid, a dividend hike isn’t included in the plan—but it could happen. Data center construction isn’t a major growth driver yet, but if it ramps up, guidance would be revised higher.

If you’d like to discuss whether AQN fits your portfolio strategy, please contact us to start the conversation.

-written by Jeff Pollock