Citigroup downgrades AES Corp. (AES ) to hold from buy.
Analyst Brian Chin says he downgrades due to higher interest rate and regulatory risks. He believes the stock is almost fully valued.
He notes rising interest rates could affect AES in two ways: 1) increasing interest expense on 22% of its $18.6B debt and 2) rising refinancing costs for project-level debt as emerging markets bond spreads widen.
Chin believes a turnaround story will continue unfolding positively. Delevering, operating improvements, new project additions could translate into 17% annual earnings per share growth through 2007, but he believes the recovery story is mostly priced in.