Today I will examine American Electric Power Company, Inc.'s (NYSE:AEP) latest earnings update (30 September 2019) and compare these figures against its performance over the past couple of years, in addition to how the rest of AEP's industry performed. As a long-term investor, I find it useful to analyze the company's trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time.
Were AEP's earnings stronger than its past performances and the industry?
AEP's trailing twelve-month earnings (from 30 September 2019) of US$2.1b has increased by 8.7% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 5.9%, indicating the rate at which AEP is growing has accelerated. How has it been able to do this? Let's see if it is only owing to an industry uplift, or if American Electric Power Company has seen some company-specific growth.
In terms of returns from investment, American Electric Power Company has fallen short of achieving a 20% return on equity (ROE), recording 11% instead. Furthermore, its return on assets (ROA) of 4.3% is below the US Electric Utilities industry of 4.5%, indicating American Electric Power Company's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for American Electric Power Company’s debt level, has declined over the past 3 years from 6.3% to 4.6%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 111% to 141% over the past 5 years.
What does this mean?
American Electric Power Company's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? You should continue to research American Electric Power Company to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AEP’s future growth? Take a look at our free research report of analyst consensus for AEP’s outlook.
- Financial Health: Are AEP’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 September 2019. This may not be consistent with full year annual report figures.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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