On Wednesday, Seaport Global Securities adjusted its rating on Atlantica Sustainable Infrastructure (NASDAQ:AY) stock, moving from Buy to Neutral following news of the company's board approving a sale to Energy Capital Partners (ECP).
The transaction is valued at $22 per share, which Seaport Global Securities notes is equivalent to approximately 9 times enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA), based on projections for 2024 and 2025 EBITDA and net debt.
The downgrade comes in the wake of Atlantica's strategic review and the particular challenges faced by its solar thermal plants.
Additionally, the influence of Algonquin Power & Utilities Corp.'s (AQN) decision to offload all non-utility operations was considered a factor in the valuation.
Despite expectations of a 10x EBITDA valuation due to Atlantica's rapidly amortizing debt, the agreed-upon sale price fell short of these anticipations.
Atlantica's strategic options were limited due to its exclusion from equity markets, leading to a choice between private investment or continuing in the public market with the looming possibility of a dividend reduction under the shadow of AQN.
The sale to ECP is seen as a move to resolve these issues, although Seaport Global Securities expressed reservations about the growth strategy and the decision to sell at what they perceive to be a low EV/EBITDA multiple.
The firm's statement expressed a mix of concern and relief, acknowledging the clarity provided by the sale's conclusion but questioning the pursuit of growth under the given financial conditions.
The change in stock rating to Neutral from Buy reflects these uncertainties and the new ownership structure anticipated for Atlantica Sustainable Infrastructure.
InvestingPro Insights
Following the recent developments with Atlantica Sustainable Infrastructure, current metrics and analyst insights from InvestingPro paint a broader picture of the company's financial health and market position. As of the last twelve months leading up to Q1 2024, Atlantica boasts a substantial dividend yield of 8.01%, a compelling figure for income-focused investors. Additionally, the company's liquid assets surpass its short-term obligations, indicating a robust liquidity position. With a market capitalization of $2.58 billion and a price close to its fair value as estimated by analysts at $22.75 and InvestingPro at $22.62, the stock is trading near levels that analysts deem reasonable.
InvestingPro Tips highlight that Atlantica has been increasing its dividend for 7 consecutive years, which aligns with the company's attractive dividend yield. Furthermore, the company has seen a strong return over the last three months, with a price total return of 26.72%, reflecting positive market sentiment. For investors seeking more in-depth analysis, there are additional tips and insights available on InvestingPro, including the latest earnings revisions and valuation metrics. Use coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and unlock the full suite of features and tips that InvestingPro offers.
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