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What’s American Electric Power’s Current Valuation?

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Market performance

Just like many other utility companies, American Electric Power (AEP) rallied sharply in the first half of last year but fell in the latter half. AEP shares managed to gain nearly 8% in the last year. Let’s look at how these companies are currently priced.

On January 18, 2017, American Electric Power (AEP) was trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation multiple of near 10x. AEP’s five-year historical EV-to-EBITDA average stands at nearly at 9.5x. US utilities’ (XLU) industry average stands near 10.5x. AEP seems fairly valued compared to the industry average while marginally overpriced compared to its historical average.

AEP stk

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Peer comparison

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 the 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.

PE multiple

Utilities have largely traded near an average PE multiple of 15x–16x in the last several years. American Electric Power is currently trading at a PE multiple of 18x, much lower than the industry average. Duke Energy and Southern Company are currently trading at a PE multiple of 18x, and the industry average is currently near 20x. In the next article, we’ll look at how AEP stock could trend in the short term.

To learn which utilities may offer attractive upsides in 2017, read A Look at S&P 500 Utilities with Attractive Upsides in 2017.

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