American Electric Power Receives a Hold from Jefferies

By Jason Carr

Jefferies analyst Anthony Crowdell reiterated a Hold rating on American Electric Power (NYSE: AEP) today and set a price target of $62. The company’s shares closed last Friday at $59.99.

Crowdell noted:

“The Oklahoma Corporation Commission (OCC) finally issued a final decision in AEP subsidiary Public Service Co. of Oklahoma’s (PSO) rate case. The OCC authorized a $14 million rate increase, 9.5% ROE, and 44% equity ratio. We think PSO is likely to refile soon and is likely to receive a higher equity ratio, and recover some costs that were excluded from base rates in this rate case. The OCC authorized a $14MM rate increase, vs. the requested increase of $137MM. The main differences are lower ROE, equity ratio, depreciation rates, and environmental spend. PSO had requested to include $135MM of environmental capex in base rates, but the investment was not in service by 6 months after the test year. We expect PSO will refile soon to include this investment. PSO had implemented a rate increase of $75 million in January; the company was ordered to refund the difference by October 2017. The authorized equity ratio of 44% is lower than the requested 48%. PSO’s test year equity ratio was 44%, which was caused largely by the issuance of $250 million in debt, which temporarily skewed the capital structure. This is expected to be remedied by retaining earnings in 2016 and forgoing paying dividends to the parent (though we note that PSO has not paid a dividend to the parent since 2013). We assume that when AEP refiles in Oklahoma, they will receive an authorized equity ratio around 48%.”

According to TipRanks.com, Crowdell is a 2-star analyst with an average return of -0.6% and a 38.3% success rate. Crowdell covers the Utilities sector, focusing on stocks such as Public Service Enterprise, El Paso Electric Company, and Pnm Resources Inc.

Currently, the analyst consensus on American Electric Power is Moderate Buy and the average price target is $68, representing a 13.4% upside.

In a report issued on November 2, Evercore ISI also downgraded the stock to Hold.

Based on American Electric Power’s latest earnings report for the quarter ending September 30, the company posted quarterly revenue of $4.64 billion and GAAP net loss of $766 million. In comparison, last year the company earned revenue of $4.4 billion and had a net profit of $519 million.

Based on the recent corporate insider activity of 23 insiders, corporate insider sentiment is positive on the stock. This means that over the past quarter there has been an increase of insiders buying their shares of AEP in relation to earlier this year. Most recently, in May 2016, Mark C. McCullough, the EVP of AEP bought 4,425 shares for a total of $284,660.

American Electric Power Co., Inc. is a public utility holding company that engages in the business of generation, transmission and distribution of electricity. It operates through following segments: Vertically Integrated Utilities, Transmission & Distribution Utilities, AEP Transmission Holdco, Generation & Marketing. The Vertically Integrated Utilities segment engages in the generation, transmission and distribution of electricity for sale to retail and wholesale customers through assets owned and operated by its subsidiaries. The Transmission & Distribution Utilities segment engages in the business of transmission and distribution of electricity for sale to retail and wholesale customers through assets owned and operated by its subsidiaries. The AEP Transmission Holdco segment engages in the development, construction and operation of transmission facilities through investments in its wholly-owned transmission subsidiaries and joint ventures. The Generation & Marketing segment engages in non-regulated generation; and marketing, risk management and retail activities. The company was founded on December 20, 1906 and is headquartered in Columbus, OH.