Shares of utility giant AES Corp (NYSE: AES) jumped as much as 11.5% in trading Thursday after it was revealed that activist investor ValueAct Capital Management's founder Jeffrey Ubben has been given a board seat and will push for more renewable energy. At 11:55 a.m. EST, shares were still trading 9.1% higher on the day.
Ubben and ValueAct are pushing for AES to accelerate selling coal assets and reinvesting the money into renewable energy assets that have attractive investment profiles. Wind and solar assets, in particular, can provide long-term contracted cash flows that utilities can leverage to generate double-digit returns. Selling higher-risk coal assets could help lower borrowing costs to boost those returns.
AES will also continue to be a leader in energy storage through its joint venture with Siemens called Fluence. Energy storage is an increasingly important asset in the utility industry, and it should be a growth business for AES.
The involvement of a well-known activist investor isn't necessarily the reason to be bullish on AES long-term, but it's a nice data point in your investment thesis. More than most utilities are, I think AES is investing in next-generation assets that will modernize its fleet and reduce risk overall. Getting an activist to put his weight behind doubling down on renewables is a good sign for the company, and as operations improve, I think the stock will be a solid performer as well.
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