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Balanced Outlook on American Electric Power

On March 18, 2014, we issued an updated research report on American Electric Power Co. Inc. (AEP). The utility service provider exhibits growth through expansion of transmission assets and its stable earnings base affirms our confidence in the company. However, weather dependent demand and weak economic fundamentals temper our expectation.

Zacks Rank #2 (Buy) American Electric Power posted impressive financial statements with its fourth quarter 2013 earnings beating the Street expectations and escalating year over year. Revenues were also ahead of the Zacks Consensus Estimate and increased year over year. American Electric Power posted earnings surprises in three of the past four quarters, with an average beat of 1.27%.

The company covers a broad service area and is poised to gain from the current shale boom in the U.S., especially from the Utica shale play. Increased shale activity in the Ohio and Texas regions will propel American Electric’s growth trajectory.

American Electric Power expects to spend $3.8 billion per year from 2014 through 2016 with the investment primarily skewed towards development of the Transmission and Distribution segment. The company plans to invest more in its regulated business and at the same time implement measures to curtail unregulated generation costs.

Moreover, American Electric maintains a strong liquidity position which will enable the company to manage its short-term financial needs and finance high-growth projects.

However, we fear more stringent environmental policies will weigh on the company as nearly 66% of the company's power is generated from coal.

In addition, sluggish economic recovery in some of its service territories and customer switching could impact the performance of this company going forward.

Other Stocks to Consider

Similar utility stocks with a favorable Zacks Rank include Otter Tail Corp. (OTTR), Public Service Enterprise Group Inc. (PEG) and Exelon Corporation (EXC). All these stocks sport a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on AEP
Read the Full Research Report on EXC
Read the Full Research Report on PEG
Read the Full Research Report on OTTR

Zacks Investment Research