- The Washington Times - Monday, October 8, 2001

Shares of AES Corp. have been taking a tough hit amid growing global economic uncertainty, and after the Arlington company revised downward its yearly earnings estimates.

Priced at more than $70 per share a year ago, AES's stock has been trading in the teens recently. It closed at $13.63 on the New York Stock Exchange Friday.

Two weeks ago the company, which generates, distributes, and supplies retail electricity, told analysts it was reducing its annual earnings estimates by 50 cents per share.

AES blamed the reduction on the weakening of the Brazilian currency, which hurt its operating income there. The steady drop of electricity prices in Britain, another of its markets, also hurt income, the company said in a statement.

"Basically they told Wall Street that they were not going to earn as much this year as they previously had been telling people," says Andre Meade, analyst with Commerzbank Securities. "And investors reacted pretty negatively."

In its 20 years history, AES has held a steady growth rate of 25 percent per year. Its recent revision marks the first time the company did not grow as it had expected.

On a broader view, AES is facing tough times because of what analysts called a two-year-long "acquisition binge," where AES bought dozens of companies. Now the weakening economy is making it increasingly difficult for AES to justify the acquisition prices, Mr. Meade says.

"It's proving to be more difficult than they thought," says the analyst, who rates the stock a "hold" because he does not expect a near-term recovery for the company.

"They need to rebuild investors' confidence by showing earnings soon," Mr. Meade says. "And my fear is that there are going to be worse earnings news in the next few quarters, so I don't see a sharp rebound right away."

AES is unlike many of its U.S. counterparts in that most of its assets are scattered throughout nearly 50 countries.

The company was founded in 1981. Texas was its first U.S. market, and Britain became its first overseas market soon after, at a time when the European nation was deregulating electricity.

AES gained a more prominent presence in Europe after the fall of the Iron Curtain opened dozens of small Eastern European nations to utilities that would buy and update their obsolete nuclear power plants.

By 1996, AES had plants throughout Europe and Asia. Then it aggressively began buying facilities in South America. Now the target is Africa.

The weakening global market paired with falling electricity prices have hurt the power industry in general. AES was particularly hurt because of its large overseas investments.

Last week, its creditors lowered the company's credit rating, sending the stock down further than that of its competitors, says Jeff Pittsburg, an analyst at Pittsburg Research, who rates the stock a hold.

"Their fixed rating went from stable to negative nobody likes that," he says.

For its second quarter ended June 30, AES says sales rose 26 percent to $2.215 billion from $1.751 billion a year ago. Meanwhile net income fell 20 percent to $112 million (21 cents per diluted share) from $140 million (28 cents). Diluted shares reflect the value of options, warrants and other securities convertible into common stock.



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