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What Drove American Electric Power’s 4Q16 Earnings?

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Part 3
What Drove American Electric Power’s 4Q16 Earnings? PART 3 OF 4

Analyzing AEP’s Valuation after Its 4Q16 Results

Valuation

American Electric Power (AEP) has rallied nearly 8% in the last year. It’s currently trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 9.5x.

AEP’s five-year historical EV-to-EBITDA average stands at nearly 9.5x. US utilities’ (XLU) industry average is near 10.5x. AEP seems fairly valued compared to the industry average and its historical average.

Analyzing AEP’s Valuation after Its 4Q16 Results

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AEP’s peer Duke Energy (DUK) is currently trading at an EV-to-EBITDA multiple of 10x. Southern Company (SO) has a valuation multiple of 12x.

The EV-to-EBITDA ratio indicates whether a stock is undervalued or overvalued, regardless of its capital structure. EV is the combination of a company’s debt and market capitalization minus its cash holdings.

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