Why Are Analysts Bullish on American Electric Power Company (AEP)?

American Electric Power Company may be overvalued, but the 14 analysts following the company give it an average rating of buy because of its strong growth indicators. The analysts have set target prices ranging from $87.5 to $113.0 per share, for an average of $100.61. At today's price of $84.03, American Electric Power Company is trading -16.48% away from its average target price, suggesting there is an analyst consensus of some upside potential.

American Electric Power Company, Inc., an electric public utility holding company, engages in the generation, transmission, and distribution of electricity for sale to retail and wholesale customers in the United States. Based in Columbus, OH, the large-cap Utilities company has 16,974 full time employees. American Electric Power Company has offered a 3.8% dividend yield over the last 12 months.

American Electric Power Company has a trailing twelve month P/E ratio of 21.8, compared to an average of 22.89 for the Utilities sector. Based on its EPS guidance of 5.62, the company has a forward P/E ratio of 15.0. Based on the average compound growth rate of American Electric Power Company's historical and projected earnings per share, which is 7.7%, the company's PEG ratio is 3.03. This suggests that these shares are overvalued.

Furthermore, American Electric Power Company is likely overvalued compared to its book value, since its P/B ratio of 1.82 is higher than the sector average of 1.03. The company's shares are currently trading 26.1% above their Graham number, implying that they are overvalued in terms of earnings and book value.

So why are analysts giving AEP a good rating? We believe analysts could be encouraged by the company's impressive 5.7% rate of cash flow growth over the last 4 years. Furthermore, American Electric Power Company has wide margins as you can see in the financial summary below.

2019-12-31 2020-12-31 2021-12-31 2022-12-31
Revenue (MM) $15,561 $14,918 $16,792 $19,640
Gross Margins 59.4% 63.9% 60.8% 57.5%
Operating Margins 17.7% 20.0% 20.4% 19.2%
Net Margins 12.35% 14.75% 14.82% 11.75%
Net Income (MM) $1,921 $2,200 $2,488 $2,307
Net Interest Income -$1,072,500 -$1,165,700 -$1,199,100 -$1,396,100
Depreciation & Amort. -$2,740,100 -$2,906,800 -$3,046,400 -$3,285,700
Earnings Per Share $3.88 $4.42 $4.96 $3.85
EPS Growth n/a 13.92% 12.22% -22.38%
Diluted Shares (MM) 495 497 502 515
Free Cash Flow (MM) -$1,874 -$2,483 -$1,924 -$1,484
Capital Expenditures (MM) -$6,144 -$6,316 -$5,764 -$6,772
Net Current Assets (MM) -$51,901 -$55,631 -$57,179 -$86,628
Current Ratio 0.4 0.44 0.63 0.47
Long Term Debt (MM) $25,127 $28,986 $31,301 $33,626
Net Debt / EBITDA 5.17 5.29 5.22 5.62
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.