On Jan 5, 2015, we have issued an updated research report on American Electric Power Co., Inc. (AEP).
One of the largest integrated utilities in the U.S, American Electric reported positive earnings surprises in three of the past four quarters, delivering an average surprise of 9.56%. The company’s shares have surged 34.39% in the past one year, outperforming the 12.59% gain of the S&P 500 in the same period.
American Electric had recently released an update on its earnings guidance for 2015 and 2016, increasing the former and reaffirming the latter. The company increased the low end of its operating earnings guidance for 2015 to a range of $3.40–$3.60 per share from the previous projection of $3.30–$3.60 per share. For 2016, the company reaffirmed its guidance in a band of $3.45–$3.85 per share.
The company also provided a projection for capital expenditure for the period 2015–2017. American Electric expects capital investment of $4.4 billion in 2015, $3.8 billion in 2016 and around $3.9 billion in 2017. Major part of the planned capital investment will be directed towards the development of its Transmission segment in the period 2014 through 2016. The company will continue to invest over $1.5 billion annually in transmission infrastructure projects.
This Zacks Rank #3 (Hold) stock continues to retain a strong liquidity position, which enables the company to make capital investments.
American Electric’s cash and cash equivalents as of Sep 30, 2014 were $194 million compared with $118 million as of Dec 31, 2013. Long-term debt was $15.6 billion as of Sep 30, 2014 compared with $16.8 billion as of Dec 31, 2013. American Electric’s cash flow from operating activities in the first nine months of 2014 stood at $3.7 billion compared with $3.0 billion in the same period last year.
The company’s financial strength allows it to invest substantially in growth projects and create shareholder value at the same time. The company has been returning wealth to its shareholders via dividends since Jul 2010. Recently, American Electric hiked its quarterly cash dividend by 6% to 53 cents from the previous payout of 50 cents.
On the flip side, stringent environmental regulations remain a major overhang. In order to comply with environmental regulations, the company invested $10 billion over the past decade. Further, American Electric projects this investment to range from about $3–$3.5 billion through 2020. The additional expenditure could weigh on the company’s finances.
Other Stocks to Consider
Better-ranked stocks in the same sector include CMS Energy Corp. (CMS), Consolidated Edison, Inc. (ED) and PG&E Corporation (PCG). While PG&E sports a Zacks Rank #1 (Strong Buy), CMS Energy and Consolidated Edison carry a Zacks Rank #2 (Buy).
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