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Analysts Expect Lower Earnings from AEP in 1Q16

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Apr. 25 2016, Published 3:50 a.m. ET

Analysts expect lower EPS

American Electric Power (AEP) is set to report its 1Q16 results on April 28, 2016. Wall Street analysts are estimating it to report earnings of $1.06 per share in 1Q16. For the same period last year, it earned $1.28 per share. American Electric Power’s management has provided an earnings guidance range of $3.60–$3.80 per share for 2016.

Let’s look at the revenue expectations of American Electric Power first. It has missed revenue expectations in four out of the past five quarters. In 1Q16, analysts expect revenues of $4.3 billion from AEP.

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Revenue drivers of AEP

In the first quarter of 2015, American Electric Power (AEP) managed to clock $4.7 billion in revenues. The declining load growth can be one of the reasons for the lower expectations of revenues in 1Q16.

In the last five out of eight years, the load growth in North America declined due to lower electricity usage per customer. Also, weather plays an important role in driving sales of utilities.

In 2015, unfavorable weather dragged down the earnings of many utilities. In particular, the principal operating areas of AEP experienced higher temperatures than in 2015, which could again subdue its earnings.

On a positive note, American Electric Power’s presence in 11 states offers it a geographical diversification. This may reduce the impact of unfavorable weather.

Economic factors like employment growth and GDP growth are catalysts in driving the performance of utilities (XLU). In 2015, GDP growth and employment growth in AEP’s operational zones were well below the national average.

On an average, the US GDP growth stayed near 2.5% compared with 1.5% in AEP’s areas last year. Ohio and Texas are the principal operational states of AEP. Duke Energy (DUK) and FirstEnergy (FE) also have a significant presence in Ohio, and Xcel Energy (XEL) has a significant presence in Texas.

Let’s focus on AEP’s net income in the next part.

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