American Electric Power’s (AEP) management is looking for an earnings growth of 4% to 6% annually in the next couple of years. Regulated operations remain the primary investment avenues for AEP for its planned capital spending. It has a $15 billion spending plan of which half is likely to be spent on its regulated transmission network.
Subdued demand growth of electricity can be a concern for AEP, but the company can offset slow demand growth with rate increases and growth in its customer base. AEP is well positioned for future growth, as it has a strong geographical presence in 11 states and a healthy business mix of wholesale and regulated business. Management has reaffirmed its 2016 full-year earnings guidance range of $3.60 to $3.80 per share.
American Electric Power (AEP) has an estimated upside of 6% with a median price target of $62.5 over the next year.
AEP is currently trading at $59.4 as of January 28, 2016. Of the 25 analysts tracking AEP, 11 recommend it as a “hold” while 14 analysts recommend AEP as a “buy.” None of the analysts have a “sell” recommendation for AEP as of January 28, 2016.
By comparison, utility (VPU)(FXU) giant Southern Company (SO) has a price target of $47.2 against its current market price of $48. Duke Energy (DUK) has an estimated upside of ~6% in one year, according to analyst estimates. DUK has a price target of $75.9 against its current market price of $71.4.
AEP’s focus on regulated operations can improve its earnings stability. The stock is currently yielding 3.8% as of January 28, 2016. Management is expecting a dividend payout ratio of 60%–70% in 2016 with a projected annual dividend growth of 4.1%.