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Analyst Blog

American Electric Power Company Inc. (AEP - Analyst Report) reported third quarter 2013 operating earnings of $1.10 per share, beating the Zacks Consensus Estimate of $1.08 by 1.9%. The quarterly figure also improved 7.8% from the year-ago profit level of $1.02. This improved performance reflects positive returns from the investments made in the company’s regulated operations.

On a GAAP basis, the utility earned 89 cents a share versus earnings of $1.00 in the year-ago period. The difference between GAAP and operating earnings was due to 21 cents of special items.

The company also hiked its quarterly dividend by 2% to 50 cents ($2.00 per share annualized) from the previous payout 49 cents.

Operational Performance

American Electric Power’s quarterly revenue was $4.2 billion million, missing the Zacks Consensus Estimate of $4.6 billion. The reported number was, however, on par with the year-earlier level.

Segmental Performance

Utility Operations: Operating earnings increased 6% year over year to $508.0 million. This was primarily backed by successful rate proceedings and lower spending resulting from cost-containment initiatives. These, however, were partly offset by the impacts of higher competition in Ohio, associated with the decline in capacity payments in the PJM Interconnection and cooler weather compared to last year.

Transmission Operations: Operating earnings experienced a major boost, improving 57.1% year over year to $22.0 million in the quarter, attributable to an increase in transmission investment.

AEP River Operations: This segment registered an operating loss of $1 million, which came in line with the year-ago figure.

Generation and Marketing: Operating earnings were $4.0 million, down 60% from $10.0 million in the third quarter 2012.

All Other: The segment’s operating earnings were at break-even during the quarter compared to a loss of $6.0 million in the year-ago period.

Financial Condition

American Electric Power’s cash and cash equivalents as of Sep 30, 2013 were $147.0 million versus $279 million as of Dec 31, 2012.

Long-term debt was $16.2 billion as of Sep 30, 2013 versus $15.6 billion as of Dec 31, 2012.

American Electric Power’s cash flow from operating activities during the first nine months of 2013 was $3.0 billion compared with $2.9 billion in the year-ago comparable period.

Guidance

American Electric Power, one of the largest electric utilities in the U.S., raised its lower end of this year’s operating earnings guidance to $3.15 to $3.25 per share from $3.05 to $3.25 per share.

Outlook

American Electric Power has a stable earnings base of approximately 5 million customers spread over 11 states. The company’s cost-control initiatives, particularly overhead cost, are expected to reap the benefits in the balance of the year 2013. The company had earlier expected its O&M expenses to remain flat year over year in 2013.

Although energy efficiency continued to adversely impact residential load growth, commercial demand was higher during the third quarter. Industrial sales, though challenged, provided a small margin contribution when compared to residential and commercial load.

Zacks Rank

American Electric Power currently has a Zacks Rank #2 (Buy). Other stocks in the industry that are also worth considering are Alliant Energy Corp (LNT - Snapshot Report), Ameren Corp. (AEE - Analyst Report) and Cleco Corp. (CNL - Snapshot Report), all with a comparable Zacks Rank #2 (Buy).

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