Ohio-based American Electric Power Company (AEP) operates the largest electricity transmission system in the U.S., serving 5.5 million customers across 11 states. By 2030, the company aims to increase its renewable power generation portfolio to 50% of its total capacity.
AEP’s recent Q2 results missed out on revenue but beat earnings per share estimates.
Let’s take a look at the company’s financial performance and what’s changed in its key risk factors that investors should be aware of.
During the quarter, AEP’s revenue increased to $3.83 billion versus $3.5 billion a year ago but missed analysts’ estimate of $3.88 billion. This increase in revenue was on the back of growth in the company’s Vertically Integrated utilities and Transmission and Distribution Utilities segments.
Supported by robust contribution from Transmission & Distribution Utilities and AEP Transmission segments, earnings per share of $1.18 were ahead of the Street’s estimate of $1.13. (See American Electric Power stock chart on TipRanks)
The Chairman, President and CEO of AEP, Nicholas K. Akins, said, “The investments we are making in a cleaner, more efficient, and resilient energy system to serve our customers continue to drive our strong earnings results…We are seeing positive signs of economic improvement as the nation recovers from the pandemic. Commercial and industrial sales have bounced back throughout our service territory across nearly all sectors.”
Looking ahead to the rest of Fiscal Year 2021, the company reaffirmed its 2021 guidance and expects operating earnings to be in the range of $4.55 to $4.75 per share and a long-term growth rate of 5% to 7%.
Following AEP’s Q2 performance, Wells Fargo analyst Neil Kalton reiterated a Hold rating on the stock, while lowering the price target to $93 from $96.
Evercore ISI analyst Durgesh Chopra has a Buy rating on the stock with a price target of $99. During AEP’s Q2 earnings call, Chopra asked if there was an update on the SEC subpoena received by AEP. To this, Nicholas Atkins replied that the company had been communicating with the SEC and responding to any requests from a documentation standpoint and was supportive and constructive in the process.
Based on 5 Buys and 1 Hold, consensus on the Street is a Strong Buy. The average AEP price target of $100 implies 16.3% upside potential.
Now, let’s look at what’s changed in the company’s key risk factors.
According to the new Tipranks Risk Factors tool, AEP’s two main risk categories are Production and Legal & Regulatory, which account for 33% and 28%, respectively, of the total 40 risks identified. Since June, the company has added one new key risk factor under the Legal & Regulatory risk category.
The company highlights that it is subject to taxation at the federal level as well as by certain states and municipalities. While the company believes it is in compliance with present tax laws, one or more of the different taxing jurisdictions could seek to impose incremental or new taxes on AEP.
Any adverse changes in these tax laws or regulations could materially and adversely impact AEP’s financial condition as well as the results of operations.
The Production risk factor’s sector average is at 25%, compared to AEP’s 33%. Shares are up 5% over the past six months.
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