The AES Corporation (AES) Earnings Report: Can 27 Countries Kick-Start Your Portfolio?

For utilities based solely in the United States, environmental regulation is pushing massive upgrades across the sector. The Southern Company (NYSE:SO) recently received approval for two new nuclear facilities and expects to spend $16.5 billion in the next two years to kick costly coal out of its energy portfolio. During its Q4 conference call, Duke Energy Corp (NYSE:DUK)‘s CEO called out Southern for showing up late to the modernization party, celebrating his own company’s progress. In total, Duke expects to spend approximately $12 billion to retire 6,800 MW of coal capacity. Ahead of the game, Exelon Corporation (NYSE:EXC)‘s nuclear-centric generation allows it some wiggle room to keep capex costs low and (hopefully) margins high.

Balance-sheet battles
AES’s 4.9 debt-to-equity ratio is higher than 98% of its peers, and the company has worked hard over the past year to balance its books. The company spent just more than 50% of its $1 billion in 2012 discretionary cash flow to pay down debt. In 2013, AES expects to dish out at least $350 million more to put a dent in its $6 billion of recourse debt.

AES isn’t wooing any income investors with its 1.4% dividend yield, but the company’s valuation could pique the interest of value voyeurs. The company’s stock has fallen 38% over the past five years, and its 0.5 price-to-sales ratio is well below the industry average. AES expects its new construction projects to deliver a 14% return on equity and cash yield by 2015, potentially pushing sales even higher.

Does AES make the A-list?
In an earnings seasons filled with falling sales, AES surprised analysts by rocketing its revenue. The company is quelling its bad diversification habit and seems to be taking its debt load seriously. But even as the utility pulls up its top line and streamlines operations, its dinky dividend and lackluster margins haven’t convinced me that AES is the best place for my bucks. I’ll keep a close eye on this utility over the next year, so check back to see whether AES’ Q4 results turn out to be a fluke or a turnaround.

The article AES Earnings Report: Can 27 Countries Kick-Start Your Portfolio? originally appeared on Fool.com and is written by Justin Loiseau.

Fool contributor Justin Loiseau has no position in any stocks mentioned, but he does use electricity. You can follow him on Twitter, @TMFJLo, and on Motley Fool CAPS, @TMFJLo. The Motley Fool recommends Exelon, National Grid, and Southern.

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