Algonquin Power & Utilities Corp.: Regulatory Transition Mispriced

We initiate on AQN at Strong Buy w/ $10 PT. Algonquin Power & Utilities Corp. is a North American

and international diversified utility with regulated electric, gas and water utilities and a streamlined portfolio of renewable generation. Behind the mature utility posture is a structural reset from merchant renewables to a pure-play, rate regulated business, fundamentally resetting both risk profile and growth visibility. It is on this disconnect that we found conviction: discounting legacy overhangs as regulated cash inflows swell from the mounting rate base expansion and disciplined capital allocation. We believe consensus is fixed to the present as '24-'25 rate case annualization is recognized in stages - $15.7m was recognized in Q1, stepping to $62.7m for FY25, anchoring to full-rate 12m path towards our $2.68bn FY26E target (5-7% ahead of Street). Levered to normalized customer growth and hydropower volumes returning to historic averages, AQN is silently compounding the base. Yet, it trades at 4.35x fwd EV/Sales well below our justified 5.3x FY26E multiple and with a meaningful discount to peers, despite net debt falling below 4x EBITDA following asset sales. Macros remain offsetting and 'higher for longer' is no free lunch for capex heavy names, but the accelerated deleveraging materially insulates equity (no issuance through 2027). As ever, regulatory lag remains a flip side risk, although our forecasts are flexible to moderate slippage without impact to valuation. At current levels, investors are well paid to wait for the re-rating, with the positive skew in the risk/reward too great to ignore.