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American Electric Gains From Steady Capital Expenditure

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American Electric Power Company, Inc.’s (AEP - Free Report) ongoing investments in transmission projects and expanding renewable portfolio bode well for its earnings in the future.

For 2019, earnings estimates inched up 0.2% to $4.18 per share in the past 30 days.  Additionally, long-term earnings growth of the company is pegged at 5.6%. The company posted an average positive earnings surprise of 5% in the last four quarters.

In the past 12 months, shares of the company have returned 20.9% compared with the industry’s growth of 10.7%.



What’s Driving the Stock?

The company had a strong liquidity position of $2.6 billion as of Sep 30, supported by its revolving credit facility. This enables the company to finance its upcoming initiatives. Courtesy of a solid financial position, the company is able to reward shareholders via dividend payouts.

American Electric has a stable earnings base of approximately 5.4 million customers spread across 11 states. This provides stability to the company’s revenue stream and insulates it from lower sales in any particular service area.

To drive earnings, American Electric plans to invest approximately $33 billion over the 2019-2023 period in its core regulated operations, contracted renewables and wires. This indicates 37.5% increase from the previous capital expenditure strategy, which will enable American Electric to achieve long-term organic growth of 5-7%.

The company’s investment strategy also includes notable investments in renewable generation projects across the United States. Evidently, its latest plan includes capital expenditure of $2.2 billion in contracted renewables over the 2019-2023 period, of which $1.5 billion has already been spent.

However, stringent environmental regulations and dependence on regulatory commissions for rate relief at regular intervals are major headwinds.

Zacks Rank

American Electric carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Some better-ranked stocks from the same industry are Eversource Energy (ES - Free Report) , FirstEnergy Corporation (FE - Free Report) and Fortis Inc (FTS - Free Report) . All the three stocks hold a Zacks Rank #2 (Buy).

Long-term earnings growth of Eversource, FirstEnergy and Fortis is pegged at 5.6%, 6% and 5.7%, respectively.

Eversource, FirstEnergy and Fortis delivered an average positive earnings surprise of 2.39%, 2.87% and 4.14% in the last four quarters, respectively.

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