It hasn't been a great morning session for American Electric Power investors, who have watched their shares sink by -2.0% to a price of $79.29. Some of you might be wondering if it's time to buy the dip. If you are considering this, make sure to check the company's fundamentals first to determine if the shares are fairly valued at today's prices.
American Electric Power'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 has a trailing 12 month P/E ratio of 18.7 and a P/B ratio of 1.65.
American Electric Power's PEG ratio is 2.53, 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.
The Company May Be Profitable, but Its Balance Sheet Is Highly Leveraged:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $16,196 | $15,561 | $14,918 | $16,792 | $19,640 | $18,982 |
| Operating Margins | 17% | 17% | 20% | 20% | 18% | 19% |
| Net Margins | 12% | 12% | 15% | 15% | 12% | 12% |
| Net Income (M) | $1,931 | $1,920 | $2,197 | $2,488 | $2,306 | $2,213 |
| Net Interest Expense (M) | $984 | $1,072 | $1,166 | $1,199 | $1,396 | $1,807 |
| Depreciation & Amort. (M) | $2,287 | $2,514 | $2,683 | $2,826 | $3,203 | $3,090 |
| Diluted Shares (M) | 494 | 495 | 497 | 502 | 513 | 520 |
| Earnings Per Share | $3.9 | $3.88 | $4.42 | $4.96 | $4.49 | $4.24 |
| EPS Growth | n/a | -0.51% | 13.92% | 12.22% | -9.48% | -5.57% |
| Avg. Price | $59.38 | $76.41 | $77.83 | $79.02 | $91.28 | $79.9 |
| P/E Ratio | 15.23 | 19.64 | 17.53 | 15.9 | 20.24 | 18.76 |
| Free Cash Flow (M) | $5,209 | $4,273 | $3,833 | -$1,820 | -$1,384 | -$2,366 |
| CAPEX (M) | $15 | $3 | n/a | $5,660 | $6,672 | $7,378 |
| EV / EBITDA | 10.55 | 12.58 | 12.23 | 11.86 | 13.06 | 12.32 |
| Total Debt (M) | $23,347 | $26,744 | $31,108 | $34,558 | $40,913 | $40,148 |
| Net Debt / EBITDA | 4.65 | 5.19 | 5.42 | 5.48 | 6.04 | 5.99 |
| Current Ratio | 0.48 | 0.4 | 0.44 | 0.46 | 0.51 | 0.53 |
American Electric Power has growing revenues and increasing reinvestment in the business, decent operating margins with a stable trend, and positive EPS growth. However, American Electric Power has positive cash flows, not enough current assets to cover current liabilities because its current ratio is 0.53, and a highly leveraged balance sheet.
