XLU - American Electric Power: Undervalued With Strong Dividend Growth

2024-06-15 01:39:13 ET

Summary

• AEP is an electric utilities company with the nation's largest electric transmission system, serving nearly 6M customers in 11 states.
• AEP reported positive Q1 earnings with revenue growth of 6.4% year over year, aiming for 6-7% EPS growth and a 3% annual base rate increase.
• Despite interest rate vulnerability, AEP remains undervalued with a fair value estimate of $101 per share based on my dividend discount model.
• The dividend yield sits at 4% and is well-supported with a payout ratio that sits below the sector median.

Overview

American Electric Power ( AEP ) is an electric utilities company with operations that span across the United States. They provide a range of different energy sources including the use of coal, lignite, natural gas, and renewable energy. AEP has the nation's largest electric transmission system, clocking in a total of 40,000 transmission miles. The company has a market cap of about $46B and has exposure to nearly 6M customers throughout 11 different states that it operates within. The business plans to utilize this customer base to increase revenues by incrementally raising prices by an estimated 3% throughout 2024 - 2028....

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