AES: A Contrarian Gem in the Renewable Energy Transition

AES Corporation (NYSE:AES), a global power generator with a growing renewable energy portfolio, presents a compelling contrarian opportunity amid elevated short interest and undervalued multiples. Despite a short interest ratio of 2.22 days-to-cover as of May 2025, the company's strategic moves in partnerships with tech giants like Meta and its resilient dividend yield of 5.38% suggest the pessimism embedded in short positions may be overblown. Here's why investors should consider buying the dip—and why shorts may soon face a squeeze.

The Short Interest Puzzle: Overdone or Overlooked?

AES's short interest has trended upward since early 2024, peaking at 40.7 million shares in April 2025 before retreating to 38.3 million shares by May (a decline of 6%). While this represents 5.46% of its float, the days-to-cover ratio remains moderate compared to peers like NRG Energy (4.50%) and Ormat Technologies (4.45%). Notably, institutional short sellers such as Barclays PLC, IMC Chicago LLC, and Jane Street Group LLC (as reported in SEC filings) have anchored bearish bets. Yet, their positions may be ripe for reversal.

Why Shorts Might Be Wrong: Renewable Momentum and Resilient Fundamentals

1. Strategic Partnerships in Renewable Energy:
   AES's partnership with Meta to build a 200 MW solar project in Texas underscores its pivot toward high-margin renewable contracts. Such deals align with tech firms' demand for clean energy to power data centers, a sector growing at ~15% annually. AES's focus on wind and solar projects (now 38% of its capacity) positions it to capitalize on this trend.

2. Undervalued Multiples:
   AES trades at a forward P/E of 8.5x—far below its five-year average of 12.2x and well below peers like DTE Energy (14.1x) and NextEra Energy (22.3x). Its EV/EBITDA of 6.7x also signals a bargain in a sector where even struggling utilities often trade above 10x.

3. Dividend Stability:
   AES's dividend yield of 5.38%—one of the highest among U.S. utilities—provides a floor. The company has maintained payouts since 2019, with a 3.4% payout ratio in 2024, leaving ample room for growth.

Catalysts for a Short Squeeze

• Q2 Earnings Call (August 1, 2025):
  Analysts expect EPS of $0.46, in line with AES's reaffirmed 2025 guidance of $1.80–$1.90 per share. A beat could trigger a rally, especially if management highlights progress in renewable projects or debt reduction. Historically, AES has seen positive returns following earnings calls. Over the past three years, the stock achieved a maximum single-day gain of 1.91% on day 18 post-earnings, with a 50% win rate within three days and 30 days, though the 10-day win rate dipped to 41.67%. This consistency suggests potential upside around these events.

• Technical Levels:
  The $9–$12 range has acted as a support-resistance zone since late 2023. A breakout above $12 (the 200-day moving average) could signal a sustained rally, while a close below $9 might test institutional resolve.

• Institutional Shorts as a Contrarian Signal:
  With $1.2 trillion in dry powder, private equity firms like BlackRock's Global Energy Partners have reportedly scouted AES for a potential buyout. A deal could ignite a short squeeze, given the company's $38.46 billion enterprise value versus its $9.32 billion market cap—a valuation gap shorts may struggle to ignore.

Risk Factors to Consider

• Debt Levels: AES's $32 billion debt load (3.21x debt-to-equity) remains a liability, though it has reduced leverage by $5 billion since 2023.
• Regulatory Headwinds: Operational challenges in key markets like Chile and Colombia could disrupt cash flows.

Investment Thesis: Buy the Dips, Target $12+

AES's combination of strategic partnerships, undervalued multiples, and dividend stability makes it a compelling contrarian play. Investors should accumulate positions at $9–$10, with a target of $12 (the 200-day MA) and a stop-loss below $8.50.** The risk-reward ratio tilts favorably if Q2 results meet expectations, and the looming buyout rumors add a speculative tailwind.

In a market obsessed with short-term pessimism, AES's long-term transition to renewables—and its capacity to surprise on execution—could make it a standout performer in 2025 and beyond. Shorts may soon find themselves in the crosshairs of a squeeze they didn't see coming.