Algonquin Power & Utilities' (TSE:AQN) Strong Earnings Are Of Good Quality

The subdued stock price reaction suggests that Algonquin Power & Utilities Corp.'s (TSE:AQN) strong earnings didn't offer any surprises. We think that investors have missed some encouraging factors underlying the profit figures.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Algonquin Power & Utilities' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$72m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Algonquin Power & Utilities doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Algonquin Power & Utilities' Profit Performance

Because unusual items detracted from Algonquin Power & Utilities' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Algonquin Power & Utilities' statutory profit actually understates its earnings potential! Furthermore, it has done a great job growing EPS over the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you'd like to know more about Algonquin Power & Utilities as a business, it's important to be aware of any risks it's facing. Our analysis shows 3 warning signs for Algonquin Power & Utilities (2 make us uncomfortable!) and we strongly recommend you look at these before investing.

This note has only looked at a single factor that sheds light on the nature of Algonquin Power & Utilities' profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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