AEP American Electric Power Company Inc

American Electric Power Company Inc. (AEP) provided an update on its earnings and capital spending plans for the period 2012-2014. The company had posted its fourth and fiscal 2011 results last month.

American Electric Power expects pro forma earnings in the range of $3.05 to $3.25 per share for fiscal 2012. Over the next few years, the company expects earnings growth to be in the range of 4% to 6% driven by investment in regulated operations, a refocus on transmission business and capital expenditure on regulated generating fleet to comply with new regulations from the U.S. Environmental Protection Agency.

In 2012, the company expects capital expenditure of $3.1 billion and in the range of $3.5 billion to $3.7 billion for the years 2013 and 2014.

Meanwhile, the company plans to create two sustainable businesses out of its Ohio assets, a competitive generation company and a regulated wires company. It has received approval from the Public Utilities Commission of Ohio for the corporate separation of its Ohio generation assets. It also plans to file with Federal Energy Regulatory Commission for the separation and termination and replacement of the Interconnection Agreement for its eastern generating assets with a new power cost sharing arrangement. It expects a decision by the first quarter of 2013.

American Electric Power believes that economic fundamentals are at best modest at the 11 states where it operates through its operating subsidiaries and its generation and transmission portfolios. It had reported fourth quarter ongoing earnings of 40 cents per share, in line with the Zacks Consensus Estimate. The company’s results, however, came above the year-ago quarterly earnings of 38 cents per share. In 2012, the company expects slight year-over-year growth in the industrial and commercial sectors and growth to remain flat year-over-year in the residential sector.

In fiscal 2011, the company generated approximately $3.8 billion of cash from operating activities, compared with approximately $2.7 billion generated in fiscal 2010. Long-term debt decreased to $15.1 billion at the end of the reported fiscal from $15.5 billion at the end of fiscal 2010. Given the numbers, the company believes that its balance sheet is strong and is stable in the credit market as well. It is confident that it has sufficient cash to support its capital plan and does not feel the need for equity financing beyond the company’s existing dividend reinvestment plan in the near term.

Going forward, we believe that the company offers stable earnings through consistent performance in core regulated operations, growth through transmission network expansion and an above-average dividend yield. However, tepid economies in a number of its service states restrict opportunities for growth. Also, uncertainty surrounding pending regulatory cases, its predominantly fossil-fuel based generation assets and lower wholesale sales continue to weigh on the stock.

Like its peer, Duke Energy Corporation (DUK), the company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

 
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