AEP (AEP) Down 30.2% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for American Electric Power (AEP). Shares have lost about 30.2% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is AEP due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

American Electric Q4 Earnings In Line, Revenues Fall Y/Y

American Electric Power reported fourth-quarter 2019 adjusted earnings per share of 60 cents, which came in line with the Zacks Consensus Estimate. However, the bottom line declined 16.7% from 72 cents in the year-ago quarter.

The company reported GAAP earnings of 31 cents per share compared with the year-ago quarter’s 74 cents.

The year-over-year downside can be attributed to lower revenues.

For 2019, the company reported adjusted earnings of $4.24 per share, which surpassed the Zacks Consensus Estimate of $4.22 by 0.5%. The full-year earnings increased 7.3% from the prior year and came in line with the higher end of the guided range of $4.14-$4.24 per share.

Total Revenues

American Electric’s fourth-quarter revenues of $3.6 billion missed the Zacks Consensus Estimate of $4.1 billion by 12.2%. The reported figure declined 5.3% from the year-ago quarter’s $3.8 billion.

For 2019, the company reported revenues of $15.6 billion, which missed the Zacks Consensus Estimate of $16 billion by 2.5%. The reported figure also declined 3.7% from the year-ago figure of $16.2 billion.

Quarterly Highlights

Operating expenses in the quarter were $2,038.7 million compared with $1,912.8 million a year ago.

Operating income was $471.4 million, down 16.3% from $563.1 million in the year-ago quarter.

Segmental Performance

Vertically Integrated Utility Operations: Operating earnings in the quarter increased to $136.5 million from $130.5 million a year ago.

Transmission & Distribution Utilities: Operating earnings were $71 million, down from $132.1 million a year ago.

AEP Transmission Holdco: This segment generated operating income of $111.5 million, down from $791.5 million in the fourth quarter of 2018.

Generation and Marketing: Operating earnings were $0.1 million, down from $35.2 million in the year-ago quarter.

Corporate & Other: Operating losses were $25 million compared with operating loss of $34.9 million in the year-ago quarter.

Financial Update

As of Dec 31, 2019, American Electric had cash and cash equivalents of $246.8 million compared with $234.1 million as of Dec 31, 2018.

Long-term debt was $25.13 billion as of Dec 31, 2019, compared with $21.65 billion as of Dec 31, 2018.

Cash flow from operations was $4.27 billion during 2019 compared with $5.22 million in 2018.

2019 Guidance

American Electric reaffirmed 2020 operating earnings guidance in the range of $4.25-$4.45 per share. The Zacks Consensus Estimate for 2020 earnings, pegged at $4.39, lies above the mid-point of the company’s guidance.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

Currently, AEP has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, AEP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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