Algonquin Power & Utilities Corp. (AQN): what the price assumes

boothcheck covers Algonquin Power & Utilities Corp. (AQN) but does not put one priced-in number on it: here the defensible answer is the evidence rather than a point estimate. boothcheck publishes no house fair value, target price, or buy/sell rating. Narrative composed 2026-07-25.

Generated: 2026-09-07 · Exported: 2026-09-09 · Source: https://boothcheck.com/report/AQN

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

The price sits below what even a 5%/yr operating-profit decline would warrant; the inversion reports a bound, not a solved growth path.

Solve inputs: computed at a 5.5% cost of capital with 4% terminal growth over a 5-year stage (computed at the 5.5% minimum rate; the CAPM rate 5.4% sits below it).

How unusual the bet is: within-range (limited comparison data)

Valuation X-Ray

The price is justified by relative-multiple and growth-DCF; asset-based land below the price.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that justify the price: Relative, Growth Families that call it expensive: Asset

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 5.1%); the inversion above states its own rate.

Per-Model Detail (n=8)

Solvency

Bullet Takeaways

• What remains after three years of selling is a regulated electric, gas and water utility spanning 13 U.S. states and four countries, with the non-regulated renewable business sold to LS Power for up to 2.5 billion dollars in January 2025.
• The balance sheet is the binding constraint: borrowings of about 7.75 billion dollars against 32.7 million dollars of liquid assets, with trailing operating profit exceeding the interest bill by only about a tenth.
• Management has guided to compound rate base growth of 5% to 6% from the end of 2025 through 2028, and the quarterly reports through that window are where the operating margin gap against the utility cohort either closes or does not.

Bull Case

Three years ago this was a company that owned wind farms, solar developments and utilities across several continents at once. Today it owns utilities. In January 2025 Algonquin completed the sale of its non-regulated renewable energy business, hydro excepted, to LS Power for up to 2.5 billion dollars, applying roughly 1.6 billion dollars of the proceeds to reducing borrowings. What is left is regulated electric, gas and water distribution in 13 U.S. states and four countries, and nothing else large enough to change the story.

That simplification matters more than it sounds, because regulated utility economics are unusual in a specific way. A regulator permits the company to earn a return on capital it puts into the ground, which means the spending is the growth. AEP describes the accounting plainly in its own 10-K: When incurred costs are probable of recovery through regulated rates, regulatory assets are recorded on the balance sheets. Costs that would be an expense at an ordinary company become an asset at a utility, provided the regulator agrees. That is the entire machine, and Algonquin now runs nothing else.

Management has guided to compound rate base growth of 5% to 6% from the end of 2025 through 2028. The early evidence is directionally consistent: revenue in the March 2026 quarter reached $792.4 million against $692.4 million a year earlier, with the increase coming from regulated electricity, natural gas and water distribution. For a business whose revenue is set by regulators rather than by customers choosing, that is close to the only growth signal that exists.

The margin gap against the cohort is the opportunity rather than the verdict. Algonquin earned a 15.3% operating margin over the trailing year. AVA earned 18.9% and NWE 19.2%, both of them smaller by revenue; LNT earned 23.0% and AEP 24.2%. In a regulated business the allowed return is set by a commission, so a persistent shortfall against comparable utilities is not evidence of a weaker franchise. It is evidence of a business that has not yet been run to the allowed return, and closing several points of operating margin on this revenue base is worth more than any acquisition the company could plausibly make.

Which is why the appointment matters. Rod West became chief executive on March 7, 2025, arriving from 25 years at Entergy where he ran utility operations, regulatory engagement and customer service. The previous decade's problem was a company that behaved like a developer and financed like one. The job now is unglamorous: file rate cases, land the capital plan, earn the allowed return. Hiring an operator to do operator work is not a thesis on its own, but it is the correct sequence.

Bear Case

A utility is supposed to be the boring part of a portfolio. This one has cut its dividend, sold its growth business, replaced its chief executive and spent three years shrinking, and the balance sheet still carries the marks of what came before. Gross borrowings stand near 7.75 billion dollars against 32.7 million dollars of liquid assets. Trailing operating profit is about 351 million dollars. Net borrowings run roughly 22 times operating profit, and operating profit exceeds the interest bill by about a tenth.

That last figure governs everything else. A regulated utility can carry heavy debt precisely because a commission sets its revenue and recessions do not remove it. What it cannot easily do is carry debt that absorbs nearly all of its operating profit while also funding a dividend and a construction programme out of the same earnings. The dividend costs 26 cents a share a year. The construction programme is what produces the 5% to 6% rate base growth management has guided to. Both are being funded from a base that trailing operating profit does not cover once interest is paid, and the share count shows the mechanism: up 5.3% a year across the four years to December 2025.

The operating result is also weaker than the cohort it will be measured against. Algonquin earned 15.3% at the operating line. AVA earned 18.9%, NWE 19.2%, NI 16.7%, LNT 23.0% and AEP 24.2%. Only POR, at 14.0%, sits lower. Where a commission sets the allowed return and the operator's task is to earn it, a standing gap against comparable utilities says something about execution rather than about the market being wrong.

The regulatory machinery cuts both ways, and peer filings describe the sharp edge better than any summary would. NI reports rate proceedings that allows for various entities to challenge our current or future rates, structures or mechanisms and could alter or limit the rates we are allowed to charge our customers. AVA notes that even where recovery is eventually permitted, our operating cash flows can be negatively affected until these costs are recovered from customers. For a company holding 32.7 million dollars of liquid assets, the lag between spending money and being allowed to charge for it is not an accounting nuance. It is a financing requirement.

What today's price requires, meanwhile, is almost nothing, and that is less reassuring than it sounds. The market values the whole enterprise at roughly 32 times what the business earns at the operating line, and the arithmetic balances so long as operating profit merely avoids falling faster than about 4.6% a year over five years. The catch sits in the discount rate. That calculation runs at a cost of capital of five and a half percent, the lowest rate the method will accept, and each percentage point of movement in it swings the required growth rate by around 12.6 points. A utility levered like this one is a wager on the rate environment at least as much as on the utility.

The bull is right that a clean regulated business under a career operator is a different animal from the conglomerate that got into trouble. The awkward part is who paid for the cleanup. Shareholders paid once through the dividend cut and are paying again through the share count.

Valuation

Price and book value are very nearly the same number here. The shares change hands at $6.10 against a stated book value of 6.01 dollars a share. That looks like a floor. It is not one, because what the equity earns on that book is thin: a return on equity of 3.9%, well under the cost of equity for a business of this kind, which sits above nine percent. Capital earning less than it costs consumes book value rather than compounding it, and the approaches that read a company off its balance sheet mark the book down accordingly. They land far beneath the quoted share price.

Peer multiples and the forward-growth lens both land closer, just under where the shares trade. The forward-growth read here is built as a dividend-discount calculation rather than a cash-flow projection, which for a utility distributing most of what it earns is the more natural construction: it takes the current 26-cent annual dividend and a sustainable growth rate derived from the return on equity and what the company keeps, and arrives near the traded level. Two lenses agreeing at roughly the quoted level while the balance-sheet lenses sit well below is the signature of a business the market is pricing on its distribution rather than on its assets.

The requirement embedded in the current quote is unusually light. Roughly 32 times what the business earns at the operating line. Put another way, the arithmetic is satisfied so long as profit at that line avoids falling faster than about 4.6% a year across a five-year stage. Before treating that as a wide margin of comfort, look at how it was produced. The calculation runs at a cost of capital of five and a half percent, the lowest rate the method will use, and each percentage point of movement in that rate shifts the required growth by about 12.6 points. Few businesses in this corpus are that sensitive. It is the arithmetic signature of a company whose enterprise value is mostly borrowed money.

Against the cohort, the operating result is the weak spot. Algonquin's 15.3% trailing operating margin compares with 18.9% at AVA, 19.2% at NWE, 16.7% at NI, 23.0% at LNT and 24.2% at AEP, on a revenue base of roughly 2.43 billion dollars that is smaller than all but AVA's and NWE's. Utilities do not compete for customers, so the cohort spread is a read on how well each one converts a regulator's allowed return into a reported one.

Solvency is where the description ends because it is where the risk lives. Borrowings of about 7.75 billion dollars sit against 32.7 million dollars of liquid assets, leaving net borrowings near 7.71 billion dollars, roughly 22 times operating profit. Trailing operating profit exceeds interest by about a tenth. The company is not burning cash, and the January 2025 disposal took roughly 1.6 billion dollars off the borrowings. But a share count rising 5.3% a year is the visible cost of funding a dividend and a capital plan from earnings that thin, and every point of operating margin recovered goes further here than at any peer in the cohort.

Catalysts

The March 2026 quarter showed the top line moving in the intended direction. Revenue reached $792.4 million against $692.4 million a year earlier, the increase coming from regulated electricity, natural gas and water distribution. The board declared a first-quarter 2026 common share dividend of $0.0650 per share, payable April 15, 2026.

The medium-term frame management has set is compound rate base growth of 5% to 6% from the end of 2025 through the end of 2028. Rate base is the capital a regulator permits the company to earn a return on, so that figure is the closest thing this business has to a growth rate, and each successive quarterly report is a partial verdict on whether the capital is going in on schedule and being recovered without argument.

Two structural changes still working through the numbers frame the next several prints. The sale of the non-regulated renewable energy business to LS Power completed in January 2025 for up to 2.5 billion dollars, with roughly 1.6 billion dollars applied to reducing borrowings. Rod West took over as chief executive on March 7, 2025, after 25 years at Entergy running utility operations and regulatory engagement. Neither shows up cleanly in a single quarter. Both show up in the operating margin over several, which is the specific line worth watching.

Peer Cohorts (Per Segment, With Filing Citations)

Core business (reported)

• FTS (FORTIS INC.)
• FY2025 40-F: …years ended December 31, 2025 and 2024 2. REGULATION General The earnings of the Corporation's regulated utilities are determined under cost of service ("COS") regulation, with some using performance-based rate setting ("PBR") mechanisms. Under COS regulation, the regulator sets customer rates to permit a reasonable…
• FY2025 40-F: …North American regulated electric and gas utility holding company. Entities within the reporting segments that follow operate with substantial autonomy. Regulated Utilities ITC: ITC Investment Holdings Inc., ITC Holdings Corp. and the electric transmission operations of its regulated operating subsidiaries, which…
• AVA (AVISTA CORP)
• FY2025 10-K: …results of operations. Even if our regulators ultimately allow the recovery of deferred power and natural gas costs, our operating cash flows can be negatively affected until these costs are recovered from customers. Fluctuating energy commodity prices and volumes in relation to our energy risk management process can…
• FY2025 10-K: …require changes to our business strategy and could result in reduced assets and net income, • affordability of electric and/or gas services may be a challenge for customers resulting in increased delayed payment for utility services, • potential reputational risk arising from repeated general rate case filings,…
• NWE (NORTHWESTERN ENERGY GROUP, INC.)
• FY2025 10-K: …us to operate our utility and reliably serve current customers and future customers. As a result of current macroeconomic conditions, both nationally and globally, we have recently experienced issues with our supply chain for materials and components used in our operations and capital project construction activities.…
• FY2025 10-K: …discount rate and estimated future cash flows. In estimating cash F-19 flows, we incorporate expected long-term growth rates in our service territory, regulatory stability, and commodity prices (where appropriate), as well as other factors that affect our revenue, expense and capital expenditure projections. For the…
• LNT (ALLIANT ENERGY CORP)
• FY2025 10-K: …and result in higher electricity costs that would need to be recovered from customers. We may not be able to pass on all of the changes in costs to our customers, especially at WPL where we do not have an automatic retail electric fuel cost adjustment clause to timely recover such costs and where electric fuel cost…
• FY2025 10-K: …and indirectly increase customer costs, which may decrease demand for energy or impact our customers' ability to pay their bills, which could adversely impact our financial condition and results of operations. We may incur material post-closing adjustments related to past asset and business divestitures - We have…
• POR (PORTLAND GENERAL ELECTRIC COMPANY)
• FY2025 10-K: …and natural gas in an effort to meet the needs of, and obtain reasonably-priced power for its retail customers, manage risk, and administer its long-term wholesale contracts. The Company generates revenues and cash flows primarily from the sale and distribution of electricity to retail customers in its service…
• FY2025 10-K: …bi-lateral agreements, within the region to serve retail demand. PGE's engagement in the wholesale electricity marketplace depends upon numerous factors, including: 1) the relative price and availability of power, whether purchased, generated, or from storage facilities; 2) hydro, wind, and solar conditions; and 3)…
• OGE (OGE ENERGY CORP.)
• FY2025 10-K: …financial and load growth impact on us and consequently impact our revenue and affordability of services. We have been and will continue to be affected by competitive changes to the utility and energy industries. Significant changes have occurred and additional changes have been proposed to the wholesale electric…
• FY2025 10-K: …of competition between suppliers may vary depending on relative costs and supplies of other forms of energy. It is possible that changes in regulatory policies or advances in technologies such as fuel cells, microturbines, windmills and photovoltaic solar cells will reduce costs of new technology to levels that are…
• NI (NISOURCE INC.)
• FY2025 10-K: …condition, results of operations, cash flows, and the market price of our common stock. OPERATIONAL RISKS • We may not be able to execute our business plan or growth strategy, including utility infrastructure investments, or business opportunities. • Our distribution, transmission and generation activities involve a…
• FY2025 10-K: Discussion and Analysis of Financial Condition and Results of Operations" and Note 21, "Business Segment Information," in the Notes to Consolidated Financial Statements for additional information related to each segment. Columbia Operations Columbia Operations provides natural gas to approximately 2.4 million…
• AEP (AMERICAN ELECTRIC POWER CO INC.)
• FY2025 10-K: …or holding company. In addition, both the FERC and state regulators are permitted to review the books and records of any company within a holding company system. COMPETITION The Vertically Integrated Utilities primarily generate, transmit and distribute electricity to their retail customers in their service…
• FY2025 10-K: …estimates presented. The Vertically Integrated Utilities segment is exposed to certain market risks as a major power producer and through transactions in power, coal, natural gas and marketing contracts. These risks include commodity price risks which may be subject to capacity risk, credit risk as well as interest…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.