Capital Power’s Growth Limited by AESO Framework and Uncertain Catalysts, Justifying Hold Rating

Capital Power (CPX – Research Report), the Utilities sector company, was revisited by a Wall Street analyst today. Analyst Julien Dumoulin Smith from Jefferies downgraded the rating on the stock to a Hold and gave it a C$60.00 price target.

Julien Dumoulin Smith has given his Hold rating due to a combination of factors impacting Capital Power’s potential growth. The Alberta Electric System Operator’s (AESO) new allocation framework for large loads, such as data centers, limits the upside potential for Capital Power. Despite the possibility of securing a significant allocation, the overall earnings and valuation uplift are expected to be modest due to the scale and timeline involved.
Additionally, while higher AESO power prices could boost estimates and valuation, there is a concern about the affordability of bills in the long term. The recent guidance from AESO and the fairness standards for interconnection have reduced the likelihood of substantial data center growth, which was a potential area for expansion. The analyst also notes that while there is some upside from US recontracting, the management’s less decisive stance on timing adds to the uncertainty. Consequently, without a stronger allocation or multiple catalysts, the stock’s potential for further rallying is limited, justifying the Hold rating.