We've been asking ourselves recently if the market has placed a fair valuation on American Electric Power Company. Let's dive into some of the fundamental values of this large-cap Utilities company to determine if there might be an opportunity here for value-minded investors.
American Electric Power Company's Valuation Is in Line With Its Sector Averages:
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. The company belongs to the Utilities sector, which has an average price to earnings (P/E) ratio of 17.53 and an average price to book (P/B) ratio of 1.71. In contrast, American Electric Power Company has a trailing 12 month P/E ratio of 18.3 and a P/B ratio of 1.66.
American Electric Power Company's PEG ratio is 4.11, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
An Unconvincing Cash Flow History With a Downwards Trend:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $16,196 | $15,561 | $14,918 | $16,792 | $19,640 | $19,286 |
| Revenue Growth | n/a | -3.92% | -4.13% | 12.56% | 16.96% | -1.8% |
| Gross Margins | 17% | 17% | 20% | 20% | 18% | 18% |
| Operating Margins | 17% | 17% | 20% | 20% | 18% | 18% |
| Net Margins | 12% | 12% | 15% | 15% | 12% | 12% |
| Net Income (MM) | $1,931 | $1,921 | $2,200 | $2,488 | $2,307 | $2,258 |
| Net Interest Expense (MM) | $984 | $1,072 | $1,166 | $1,199 | $1,396 | $1,740 |
| Depreciation & Amort. (MM) | $2,287 | $2,514 | $2,683 | $2,826 | $3,203 | $3,095 |
| Earnings Per Share | $3.9 | $3.88 | $4.42 | $4.96 | $4.49 | $4.34 |
| EPS Growth | n/a | -0.51% | 13.92% | 12.22% | -9.48% | -3.34% |
| Diluted Shares (MM) | 494 | 495 | 497 | 502 | 513 | 529 |
| Free Cash Flow (MM) | -$1,088 | -$1,781 | -$2,413 | -$1,820 | -$1,384 | -$3,460 |
| Capital Expenditures (MM) | $6,311 | $6,051 | $6,246 | $5,660 | $6,672 | $7,690 |
| Current Ratio | 0.48 | 0.4 | 0.44 | 0.46 | 0.51 | 0.6 |
| Long Term Debt (MM) | $33,117 | $25,127 | $28,986 | $32,204 | $34,315 | $36,716 |
| Net Debt / EBITDA | 7.35 | 5.74 | 5.85 | 5.9 | 6.04 | 6.35 |
American Electric Power Company has slimmer gross margins than its peers, an unconvincing cash flow history, and a highly leveraged balance sheet. On the other hand, the company benefits from weak revenue growth and increasing reinvestment in the business and positive EPS growth. Furthermore, American Electric Power Company has average net margins with a stable trend.
