Up 3.7% After Earnings, Is Algonquin a Good Stock to Buy Now?

The latest earnings season is a mixed bag, with some reporting strong revenue and earnings growth and some reporting losses. Sadly, Algonquin Power & Utilities (TSX:AQN) fell on the red side, reporting a 13% year-over-year dip in adjusted net income despite 3% revenue growth. For those who held the stock back in 2022, it lost 60% –70% of its value over the years. The high leverage sitting on its balance sheet – $8.75 billion – pulled the company into the red after the Bank of Canada began interest rate hikes in 2022, from 0.25% to 5.00%.

Algonquin Power & Utilities saw multiple management changes in the last four years. In the quest to turn around the company from losses to profits, Algonquin has made some progress. But the question remains whether it is a good utility stock to buy now.

The turnaround of Algonquin, a work in progress

Utilities generally have a high leverage of over 130% of their equity. Algonquin Power & Utilities’ debt was $7.5 billion in 2022 when it planned to acquire Kentucky Power for $2.6 billion. That was also the year Algonquin completed the acquisition of Liberty Utilities (New York Water) Corp for $609 million.

Amidst these acquisitions, interest expense soared 33% while revenue surged 21.6%. As the financing costs skyrocketed, its margins collapsed. To top it off, $300 million in impairment of renewable energy assets pushed the utility into losses.

What followed was something investors couldn’t imagine. Algonquin fired its former executive team, cancelled the Kentucky Power deal, and decided to sell its loss-making renewable energy division. It slashed dividends twice and did everything to reduce costs.

On January 8, 2025, the company finally sold its renewable energy business for $2.1 billion and used the net proceeds to reduce debt by $1.5 billion. In 2026, Algonquin became a pure-play regulated utility company.

Is Algonquin a good stock to buy now?

Going by valuation metrics, Algonquin appears cheap, with a forward price-to-earnings (P/E) ratio of 16.5 times and price-to-sales (P/S) ratio of 1.76 times. It is cheaper than Fortis’ forward P/E of 22 times and P/S ratio of 3.2 times. However, Algonquin is still a risky stock. The regulated utility business is facing regulatory and legal delays.

A utility company has to bear high maintenance, safety initiatives, insurance, and property tax expenses. For instance, Algonquin spent an additional $3.3 million on gas safety and excellence costs in the second quarter of 2026.

The biggest risk is getting regulators to approve the operating and capital costs. If the cost is rejected, the utility bears the cost out of its own pocket. In the second quarter, Algonquin wrote off $17.2 million in a regulatory asset as only 75% of the wildfire-related maintenance and response costs were recovered from the 2020 Mountain View Fire.

Add to this, several pending billing cases to increase rates, which may or may not be approved. For instance, the Apple Valley and Park Water utilities in California reduced the rate, leading to a $3.1 million retroactive adjustment to July 2025.

Algonquin is also looking to change its domicile to the United States to save on cross-border tax. If approved by shareholders, the re-domicile could create $0.02 to $0.03 per share in annual tax benefits.

Unlike Fortis, which is steadily growing its rate base and earnings, Algonquin is still trying to stabilise its earnings. Until that happens, its valuations are not the right measure as the fundamentals are volatile.

Final verdict

The best utility stocks are the boring ones, where annual billings are sufficient to pay for expenses, interest on debt, and dividends. Algonquin’s volatile earnings saw its dividend per share of $0.07 exceed adjusted EPS of $0.04 in the second quarter of 2026. There are better dividend stocks than Algonquin’s 4.4% yield, such as CT REIT’s 5.3% yield with 3% dividend growth. If you are looking for a turnaround stock, there are better alternatives, like Constellation Software.