Algonquin Power slumps to YTD low as Wells Fargo cuts on inconsistent messaging

Algonquin Power & Utilities (NYSE:AQN) -5.8% to its YTD low in Monday’s trading as Wells Fargo downgrades shares to Equal Weight from Overweight with a $6 price target, cut from $8.50, after the company reported mixed Q2 results and announced a deal to sell its renewable energy business for up to $2.5B.

It is difficult to argue with the board’s desire to put Algonquin (AQN) on firmer financial footing for the long-term through a sensible payout ratio – 60%-70% of projected core EPS power – and a focus on debt reduction vs. stock buybacks, but the outcome is contrary to the company’s prior messaging that it was not selling the non-regulated assets out of a position of total weakness, and that the company would not necessarily move forward with the sale if the already reduced dividend was at risk, Wells Fargo’s Neil Kalton says.

Given the shift in the strategic messaging and the revelation that the regulated operations are in worse shape than previously thought, Kalton thinks Algonquin’s (AQN) 12.5% stock price decline on August 9 was warranted.