ALGONQUIN POWER & UTILITIES CORP. (AQN): what the price requires

At today's price, ALGONQUIN POWER & UTILITIES CORP. (AQN) is priced for +11.4% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.

Generated: 2026-07-19 · Source: https://boothcheck.com/report/AQN

Headline

FieldValue
TickerAQN
CompanyALGONQUIN POWER & UTILITIES CORP.
Current price$5.73/sh

What The Price Requires (Inversion)

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

FieldValue
Inversion basiswhole-company
Operating margin needed10.9%
Operating margin today15.3%
Margin compression implied-4.4pp
Implied growth11.4%
Multiple paid31x operating income

The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.

Solve inputs: computed at a 7% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~9.4pp (computed at the 7% minimum rate; the CAPM rate 5.4% sits below it).

Reconcile: at the x-ray's 9.3% required return this reads ~6.3 years; the models below use their own rates.

How unusual the bet is: within-range

ReferenceValue
vs own history+0.31σ
sustained it ~5 years at this level55%
implied end-window share0%

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.

FamilyMedian price/FVModelsReads
Asset2.26x5expensive
Earnings—0—
Relative1.12x2expensive
Growth1.13x1expensive

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)

ModelFamilyFVPrice/FVApplicableMethodology
DCF Perpetual GrowthGrowth$10.100.57xnoReference only (OCF-based, capex excluded): OCF $0.6B
DCF Exit MultipleGrowth$0.00—noNegative/zero FCF or EBITDA — equity value floored at $0
Relative ValuationRelative$5.021.14xyesP/E 20x (static sector reference · 2026-04), scenarios: 16.7x / 20.0x / 23.3x (bear / base = reference held flat / bull), EV/EBITDA 13x
Simple DDMGrowth$5.061.13xyesDPS $0.26, g=3.9% (sustainable: ROE (TTM) × retention; not the terminal-growth assumption), ke=9.3%
Two-Stage DDMGrowth$-3.22—noStage 1: -200% for 5yr, Stage 2: 3.5% perpetual
Simple Excess ReturnAsset$2.532.26xyesBV/sh $6.01, ROE (TTM) 3.9%, ke 9.3%
Two-Stage Excess ReturnAsset$1.603.58xyes5yr excess ROE then converge to ke=9.3%
Discounted Future Market CapGrowth$2.262.54xnoRev $2.4B, growth 2% (input: historical growth; tapered), Terminal P/S: 1.5x / 1.8x / 2.1x (bear / base = today's held flat / bull, cap 8x)
Growth-Adjusted P/ERelative——no—
Margin TrajectoryGrowth——no—
Earnings Power ValueEarnings$0.01573.00xnoNormalized EBIT (5y avg op income, one-time charges added back) $0.51B × (1−31%) / WACC 5.1% → EPV (no growth)
Residual IncomeAsset$1.244.62xyesBV $6.01 + 5yr PV of (ROE (TTM) 3.9% − Kₑ 9.3%) × BV; BV grows 2.5%/yr
Graham NumberAsset$5.451.05xyes√(22.5 × EPS $0.22 × BVPS $6.01) — Graham's conservative floor
EV/EBITDA RelativeRelative$5.241.09xyesEBITDA $0.91B × sector EV/EBITDA 13.0x
FCF YieldEarnings——no—
SBC-Adj FCF YieldEarnings——no—
Ben Graham FormulaEarnings$0.1831.83xyesEPS $0.22 × (8.5 + 2×-5.0%) × (4.4 / 5.3%) (excluded from median)
ROIC-Justified P/BAsset$3.341.72xyesBV $6.01 × (ROIC 2.8% / WACC 5.1%)
P/Sales SectorRelative$7.880.73xnoRevenue $2.43B × sector P/S 2.5x
PEG Fair ValueRelative——no—
Earnings YieldEarnings$2.382.41xnoEPS $0.22 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations MultipleRelative——no—
Clinical Phase NPVGrowth——no—
MertonAsset——no—
V5 Mechanical———no—

Solvency

FieldValue
Net debt$7.7b
Net debt / NOPAT (after-tax)31.76x
Net debt / operating income (pre-tax)21.97x
Interest coverage1.1x
Share count CAGR (dilution)5.3%
Burning cashno

Bullet Takeaways

Bull Case

The capital-allocation reset is the entire bull case, and it is a deliberate retreat from a strategy that did not work. Algonquin spent years expanding into renewables and global infrastructure, took on too much debt doing it, and is now reversing course toward the boring, stable business it should have stayed close to. The company agreed to sell its renewable-energy business to LS Power for up to $2.5 billion in cash and to exit its Atlantica shareholding, two moves that together fund the transformation into a pure-play regulated utility. Selling the volatile, capital-hungry assets to pay down debt and concentrate on rate-regulated water, electric, and gas distribution is the right direction for a company whose problem was over-reach.

The regulated business is a genuinely defensible asset, which is why simplifying toward it makes sense. Regulated utilities earn an allowed return on the capital they invest in their networks, and the accounting itself reflects the stability: a peer's filing describes how a utility "must apply regulatory accounting when its rates are designed to recover specific costs of providing regulated services," recording regulatory assets and liabilities for costs that pass through to customers. That mechanism is the moat: revenue is set by regulators against an approved cost base rather than competed for in a market. Stripped of the renewables exposure, Algonquin becomes a cleaner version of that model, valued the way the regulated-utility cohort, including CMS Energy and Fortis, is valued.

The balance-sheet repair is where the asset sales pay off most directly. Net debt of about $7.7 billion against $1.8 billion of trailing operating income has left interest coverage thin, and the $2.5 billion of renewables proceeds plus the Atlantica exit are aimed squarely at that. A utility lives or dies on its cost of capital, and reducing leverage lowers it. The dividend was reset lower to a sustainable level, freeing cash for debt reduction and rate-base investment rather than an unaffordable payout. The bull case is straightforward: a mismanaged-into-complexity utility is using asset sales to deleverage and refocus on the stable regulated core, and if it executes, it re-rates toward where pure-play regulated peers trade.

Bear Case

The bear case is moat-erosion, and the irony is that Algonquin eroded its own. A regulated utility's advantage is stability, and Algonquin traded that away through an acquisition-and-renewables binge that loaded the balance sheet with debt and forced a dividend cut. The damage shows in the numbers that matter most for a utility: net debt of about $7.7 billion is more than four times trailing operating income, and interest coverage sits around 1.5 times, dangerously thin for a business whose whole appeal is supposed to be safety. A utility covering its interest only one and a half times has almost no cushion, and that fragility is self-inflicted, not a feature of the regulated model.

The transformation carries execution and dilution risk that the bull case underplays. Selling the renewables business and the Atlantica stake is the plan, but asset sales close on the buyer's terms and the proceeds have to actually arrive and actually go to debt reduction. Meanwhile the share count has grown about 5.3% a year, so existing holders have been diluted through the troubles, and the dividend cut already broke the income thesis that drew many utility investors to the stock. First-quarter 2026 adjusted earnings fell to $0.13 per share from $0.14, and the company is still incurring restructuring costs as part of the transition. A shrinking-then-stabilizing earnings base is not the growth the price assumes.

The valuation tension is specific. The price embeds about 11.7% annual operating-income growth for five years, which is aggressive for a regulated utility whose earnings just declined and whose business is being shrunk through divestiture before it can grow again. The asset-value method flags the price as expensive, and there is too little clean earnings power to anchor the other lenses confidently. The bear does not argue the regulated core is bad; it argues that the price is paying for a successful, fully-executed turnaround at a moment when the company is mid-restructuring, over-levered, and has already cut its dividend. The downside is that the transformation takes longer or delivers less than the price assumes, leaving a still-levered utility trading at a growth multiple it cannot support.

Valuation

The price assumes a recovery the company has only begun. Inverted, it embeds roughly 11.7% annual operating-income growth for five years, a demanding rate for a regulated utility, and especially so for one whose earnings declined year over year and whose business is being deliberately shrunk through asset sales before the regulated core can carry growth on its own. The near-term pace is within what Algonquin has historically shown, but the assumption that it persists for five years through a restructuring is the stretch. For a utility, that implied growth has to come from rate-base expansion and allowed returns, and a company busy deleveraging has limited capital to invest in new rate base in the near term.

The methods give a thin read because the earnings picture is muddied by the transition. The relative-multiple and forward-growth lenses reach the price, while the asset-value lens flags it as expensive, and there is no clean earnings-power estimate, which itself signals how disrupted the current profit is. The price rests largely on the assumption that the pure-play regulated utility, once the renewables sale closes and debt comes down, earns a stable, growing return. That is plausible if the transformation works, but the methods cannot yet see a clean regulated earnings base to value, so the valuation is more a bet on the turnaround than a read on demonstrated economics.

Solvency is the crux and the reason the asset sales matter so much. Net debt of about $7.7 billion is over four times operating income with interest coverage near 1.5 times, which for a utility is the opposite of the safety the sector promises. The renewables sale to LS Power for up to $2.5 billion and the Atlantica exit are the deleveraging levers, and the dividend was cut to free cash for the same purpose. The right way to weigh this name is that the balance-sheet repair is both the bull thesis and the measure of how stretched the company became; the price has credited the repair as if it were finished, while the thin coverage and ongoing restructuring say it is still underway. Against the regulated-utility cohort, Algonquin trades on the promise of becoming a clean pure-play, not yet on the stability of being one.

Catalysts

The transformation to a pure-play regulated utility is the defining catalyst. Algonquin agreed to sell its renewable-energy business to LS Power for up to $2.5 billion in cash and to exit its Atlantica shareholding, the two moves that complete the plan to become a regulated water, electric, and gas utility. The company continues to incur restructuring costs as part of the transition, so the execution and closing of those sales are the events that convert the strategy into a repaired balance sheet.

The first-quarter 2026 results showed a business in the middle of that change. Net earnings were $83.1 million, or $0.11 per share, with adjusted net earnings of $99.6 million, or $0.13 per share, both down from the prior year's $0.12 and $0.14. The company declared a second-quarter common dividend of $0.0650 per share, the reset level after the earlier cut, supporting a yield around 4%.

The forward watch items are the closing of the renewables sale and the path of debt reduction. Whether the LS Power transaction and the Atlantica exit close on the expected terms and proceeds flow to deleveraging is the single most important catalyst, because it determines whether interest coverage improves to a level befitting a utility. Beyond that, the trajectory of regulated rate-base growth and allowed returns once the company is a pure-play, and any further restructuring charges, are what the next several quarters will be judged on.

Peer Cohorts (Per Segment, With Filing Citations)

Core business (reported)

Methodology Note

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.

Sources

Algonquin Q1 2026 results, 2026 · Algonquin Q2 2026 dividend declaration, 2026

View the full interactive AQN report on boothcheck