AEP Stock Rides on Investments & Renewable Portfolio Expansion

American Electric Power Company, Inc. AEP is investing systematically in infrastructural upgrades to enhance the reliability of its operations and meet rising demand from customers efficiently. The company is also making investments to boost its renewable generation portfolio.

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However, this Zacks Rank #3 (Hold) company faces risks related to a weak solvency position.

American Electric has a capital investment plan of $54 billion for the 2025-2029 period in its electricity generation, transmission and distribution operations, including renewables. The company expects this systematic investment to support it in achieving long-term earnings growth of 6-8%.

Fresh demand is anticipated to come in the next three years, buoyed by growing economic development and an increasing number of data centers. American Electric has been investing significantly to strengthen its grid to meet the growing electricity demand and boost its customer reliability and earnings base.

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The company’s geographically diversified operations allow it to benefit from revenues generated from different states compared to its single-state utility peers. AEP owns the nation’s largest electricity transmission system, with approximately 40,000 circuit miles of transmission lines, including neutral 2,200 circuit miles of 765 kV lines, which are the backbone of the electric interconnection grid in the eastern United States.

As of Sept. 30, 2024, American Electric Power owned 23,000 MW of generating capacity, with 10,700 MW being coal-fired. The company is assessing the effects of four new Environmental Protection Agency regulations on its generating fleet, which could have a significant impact on its operating results as it refines cost estimates for complying with these regulations while meeting its obligations to provide reliable and affordable electricity.

As of Sept. 30, 2024, American Electric had $39.15 billion in long-term debt, while its cash equivalents totaled $0.53 billion. As of the same date, its current debt was $4.49 billion. As both AEP’s current and long-term debt levels remained far greater than its cash reserve, the company seems to have a weak position concerning its solvency.

In the past year, shares of AEP have risen 10.6% compared with the sector’s growth of 9.4%.

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Some better-ranked stocks from the same industry are IDACORP, Inc IDA, CenterPoint Energy CNP and NiSource Inc. NI, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

IDACORP’s long-term (three to five years) earnings growth rate is 8.3%. The company delivered an average earnings surprise of 4.33% in the last four quarters.

CNP’s long-term earnings growth rate is 7.1%. The company delivered an average earnings surprise of 0.76% in the last four quarters.

NiSource’s long-term earnings growth rate is 7.5%. The company delivered an average earnings surprise of 22.43% in the last four quarters.

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