American Electric Power Company NasdaqGS:AEP Stock Report

American Electric Power: Solid Future Growth Prospect At An Attractive Valuation

American Electric Power posted stellar Q2 2022 results beating the market revenue estimates by a staggering 16.5%. AEP announced quarterly dividend of $0.78 payable on September 9, 2022, giving us an annualized dividend yield of 3.11% at the current price level. The company has reaffirmed its non-GAAP EPS estimates for FY22 in the range of $4.87-$5.07. I assign a buy rating for AEP after taking into consideration all these factors. Investment Thesis American Electric Power Company, Inc. (AEP) is America's leading electric utility company headquartered in Columbus, Ohio. In this thesis, I will primarily analyze AEP's Q2 2022 results and its future growth drivers. I will also analyze the risks faced by the company and its valuation at current price levels. I believe AEP is a growth company with a stable dividend yield. I assign a buy rating for AEP after taking into consideration all these factors. Company Overview AEP is an electric utility company providing electricity across 11 states, catering to more than 5 million customers. It is one of the largest electricity-providing companies in the United States. The company generates, transmits, and distributes electricity to direct consumers and also to other electricity companies. It has around 224,000 circuit miles of distribution lines to deliver electricity to individual households and commercial properties. The company has nearly 22,500 MWs of regulated electricity generating capacity. It generates electricity through various methods, some of them being environment-friendly sources. AEP primarily generates electricity through nuclear, hydro, solar, wind, coal, and natural gas sources and methods. The great advantage that the company enjoys in the market is the vertical integration of its production, transmission, and distribution facilities. This integration ensures the smooth functioning of activities with limited dependence on external sources. Q2 2022 Results AEP posted stellar Q2 2022 results beating the market revenue estimates by a staggering 16.5%. The reported EPS was in line with the market expectation. The company has also reaffirmed the FY22 revenue and EPS guidance. AEP is also planning on increasing its renewable energy portfolio to 50% by 2030 and is in talks to acquire several renewable energy assets to attain that goal. It witnessed strong demand and is expecting a steady demand throughout FY22. SEC:10Q AEP AEP reported revenue from vertically integrated utilities of $2.6 billion, a 16.8% increase compared to Q2 2021 revenue of $2.2 billion. As per my analysis, the increase in electricity prices complimented by increased demand was the primary revenue driver. The revenue from transmission and distribution utilities was $1.3 billion, a 19% increase from $1.09 billion in the same quarter the previous year. The price rise was the main contributing factor to the revenue increase. The company reported total revenue of $4.6 billion, a 21% increase compared to $3.8 billion in the corresponding quarter last year. I believe the company will maintain its revenue in FY22 and FY23 by increasing its generation capacity and expanding its operation in other states. The company reported total expenses of $3.6 billion, compared to $3 billion in Q2 2021, a 20% increase. As per my analysis, the commodity price rise and labor cost were the primary factors in increased expenses. It reported a non-GAAP net income of $617.7 million, compared to $589.5 million in Q2 2021, a 5% increase. The increase could be even higher if we ignore the one-time equity loss of $165 million from unconsolidated subsidiaries. The non-GAAP EPS was reported at $1.20. The company also announced a dividend of $0.78 payable on September 9, 2022. This gives us an annualized dividend yield of 3.11% at the current price level. Overall, the company posted strong Q2 2022 results with considerable improvement across segments. The company has reaffirmed its non-GAAP EPS estimates for FY22 in the range of $4.87-$5.07. I believe the EPS estimates of the company are conservative, and as per my estimates, the FY22 EPS could be in the range of $5.10-$5.25. The company is constantly trying to expand its operations and increase its renewable energy portfolio, which I believe will be crucial for the company's growth in the coming years. Nicholas K. Akins, AEP chairman, president and chief executive officer, stated,