Every week the Bloomberg news service compiles a list of companies that get the best rankings from Wall Street analysts. And every week for months, AES Corp. of Arlington has been on that list, ranking among the 30 most highly recommended stocks in the Standard & Poor's 500-stock index.


Yes, the same AES whose stock plunged from $70 a share to less than a buck three years ago when the electricity generating business blew up after the Enron scandal.

AES, a global power producer, narrowly escaped bankruptcy in 2002 after a rapid expansion left it vulnerable to the collapse of energy prices in 2001 and upheavals in Latin American countries where the company is heavily invested.

The stock has clawed its way back to $15.51 a share at Friday's close, gaining more than 40 percent in the past 12 months.

And despite its troubled past, investors and analysts don't seem bothered by an accounting problem that popped up over the summer. In July, the company announced that it was delaying its second-quarter financial report, which was due in early August, and would restate its 2002, 2003 and 2004 financial reports. The problem was accounting for deferred taxes on deals to acquire foreign power plants in previous years.

Financial restatements have been a kiss of death for stocks like Fannie Mae because once the auditors start scrutinizing the books, they often find far more problems than they were looking for.

But AES stock has barely budged. Credit rating agencies, which often issue warnings in response to upcoming restatements, instead reaffirmed their ratings on AES.

Jonathan Cho of Fitch Ratings said AES's credit wasn't hurt "because these are all non-cash related transactions. It doesn't affect their debt, interest expense or cash flow. It would be much more of a concern if it affected cash flow or debt."

AES has 123 power plants in 26 countries. The company is the biggest player in the international power generation business and a contender in deals around the world.

When Romania decided to privatize its electrical system this year, AES was one of the bidders for its plants. When Vietnam went looking for private investors to build a new power plant, AES became a top candidate. When Bulgaria needed a new power plant, AES got the contract to build and operate it.

While three-quarters of its operations and 90 percent of its employees are outside the United States, AES owns Indiana Power & Light Corp., a major utility. The company has 20 U.S. plants, some selling power to utility companies under long-term contracts, others generating electricity that is sold on the competitive market.

Just one of those facilities is in the Washington area, a plant near Cumberland that burns Maryland coal to make electricity under contract for Allegheny Power.

In addition to burning the usual coal and natural gas, AES has plants powered by peat, wood scraps and even hazelnut shells.

In the past year it has made a major move into windmills. First AES bought a stake in US Wind Force LLC, which is developing wind-driven power plants in West Virginia, Pennsylvania and Maryland. Recently it acquired SeaWest WindPower Inc., which has windmills in California and Texas. Through those two ventures AES has wind farm projects operating or on the drawing board in 14 states.

It's not sexy stuff like windmills and "green" power that attracts investors, however, but the view that AES is a well-run business and an undervalued stock.

AES's corporate governance is unusual. The only company official on its 11-member board of directors is president and chief executive Paul T. Hanrahan. AES's retired co-founder Roger W. Sant, who owns almost 23 million shares of the company, is also on the board.

But the other nine directors are independent outsiders, including Chairman Richard G. Darman, a partner in the Carlyle Group, the global investment firm based in the District. Darman, who was director of the Office of Management and Budget under President George H.W. Bush, also holds the title "lead independent director of the board" but is not a member of AES's executive team.

"It's a good company, with good management, trading at a discount to intrinsic value," said Jim Rooney, a principal in Avenir Corp., a District-based money-management firm. Securities and Exchange Commission filings show Avenir holds about 6.7 million shares of AES, worth about $100 million.

Rooney said he started looking at AES back in its heyday, when the company was considered a growth opportunity and its stock was soaring. From his perspective, the shares were overpriced then, "but things changed after the Enron scandal broke." AES's operations can be difficult to understand, Rooney acknowledged.

It is set up as a holding company, with separate subsidiaries and affiliates that own power plants or groups of plants. Each of those projects is individually financed, so if one gets in financial trouble, the parent company is insulated from the damage.

Rooney described privately owned Avenir as a "value investor," which means the company favors stocks that are undervalued over stocks of companies that are growing rapidly.

The biggest shareholder of AES is one of the nation's best-known value investors: William H. Miller III, manager of the Legg Mason Value Trust, which is legendary for outperforming the Standard & Poor's 500 year after year.

Three Legg Mason affiliates hold stakes in AES totaling 126 million shares -- almost 20 percent of the outstanding stock. Value Trust has about 4.6 percent of its assets invested in AES, its fifth-largest holding. The fund's other big plays include Amazon.com Inc., Google Inc., Tyco International Ltd., eBay Inc. and Sears Holdings Corp.

Legg Mason's investments are worth more than $1.9 billion at today's AES stock price.

Major investments by highly regarded money managers can be as influential as the recommendations of the Wall Street researchers who have been so strong in their praise of AES.

In Friday's Bloomberg ranking of the 500 stocks in the S&P index based on analyst ratings, AES was No. 27. The stock earned a 4.33 grade on a five-point scale in which a "buy" rating is a 5 and "sell" is zero. Only one stock -- Hercules Inc., the chemical company -- gets a perfect 5.0 grade, meaning it's rated "buy" by every analyst who follows the company.

AES scored six "buy" and three "hold" ratings. Two other companies with local connections came in only slightly behind AES in the rankings: E-Trade Financial Group, which has its headquarters in New York but its top executives based in Ballston, with a 4.30 grade, and District-based Danaher Corp. with a 4.27.

Meanwhile, there are indications that AES's delayed financial reports could be on their way. Company officials declined to comment for this column, citing SEC "quiet period" regulations. Those rules restrict what companies say in the period before they sell securities, issue financial reports or take other action that could affect the price of their stock.

Jerry Knight's e-mail address is knightj@washpost.com.