American Electric Power Company Inc.’s (AEP) utility subsidiary AEP Southwestern Electric Power Company or SWEPCO acquired Louisiana based utility cooperative Valley Electric Membership Corporation or WEMCO. The purchase consideration for the acquisition was $102 million. The transaction has already received the approval of both the Boards.
The transaction is a win-win situation for both the companies with American Electric Power adding 30,000 residential, commercial and industrial customers in Louisiana spread across the Caddo, DeSoto, Grant, Natchitoches, Red River, Sabine, Vernon and Winn parishes. WEMCO customers’ electricity rates will also be lowered by a fifth following the merger.
Columbus, Ohio-based American Electric Power is a public utility holding company which, through directly and indirectly owned subsidiaries, generates, transmits and distributes electricity, natural gas and other commodities. The company is one of the largest integrated utilities in the U.S., serving more than 5 million customers in 11 states with more than 38,000MW of primarily coal-fired generating capacity and nearly 39,000 mile electricity transmission system network. The company derives revenues mainly from power-generating activities.
American Electric Power’s earnings from approximately 5.2 million customers spread over 11 states provide stability to the revenue stream of the company. This also insulates it from adverse regulatory decisions and detrimental effects of lower sales in a particular service area.
American Electric Power has focused its capital expenditure towards regulated businesses. It has also reduced its 2010 capital budget to $2 billion from the earlier $2.5 billion. Furthermore, the company’s presence in 11 states allows it to cherry pick transmission opportunities with better returns, compared to its single-state utility peers.
The selective focus on transmission expansion will allow the company to attain its 4%-8% long-term EPS growth target, coupled with an attractive dividend yield. The strategy of focusing capital expenditure on regulated utilities has reaped rich dividends for American Electric Power. This has resulted in lower outage days, leading to lower maintenance costs and improved load-base for its plants.
In the near-term however, we continue to retain our long-term Neutral stance on American Electric Power in the absence of any positive triggers, which is supported by a Zacks #3 Rank (short-term ‘Hold’ recommendation) for the stock.
The transaction is a win-win situation for both the companies with American Electric Power adding 30,000 residential, commercial and industrial customers in Louisiana spread across the Caddo, DeSoto, Grant, Natchitoches, Red River, Sabine, Vernon and Winn parishes. WEMCO customers’ electricity rates will also be lowered by a fifth following the merger.
Columbus, Ohio-based American Electric Power is a public utility holding company which, through directly and indirectly owned subsidiaries, generates, transmits and distributes electricity, natural gas and other commodities. The company is one of the largest integrated utilities in the U.S., serving more than 5 million customers in 11 states with more than 38,000MW of primarily coal-fired generating capacity and nearly 39,000 mile electricity transmission system network. The company derives revenues mainly from power-generating activities.
American Electric Power’s earnings from approximately 5.2 million customers spread over 11 states provide stability to the revenue stream of the company. This also insulates it from adverse regulatory decisions and detrimental effects of lower sales in a particular service area.
American Electric Power has focused its capital expenditure towards regulated businesses. It has also reduced its 2010 capital budget to $2 billion from the earlier $2.5 billion. Furthermore, the company’s presence in 11 states allows it to cherry pick transmission opportunities with better returns, compared to its single-state utility peers.
The selective focus on transmission expansion will allow the company to attain its 4%-8% long-term EPS growth target, coupled with an attractive dividend yield. The strategy of focusing capital expenditure on regulated utilities has reaped rich dividends for American Electric Power. This has resulted in lower outage days, leading to lower maintenance costs and improved load-base for its plants.
In the near-term however, we continue to retain our long-term Neutral stance on American Electric Power in the absence of any positive triggers, which is supported by a Zacks #3 Rank (short-term ‘Hold’ recommendation) for the stock.
AMER ELEC PWR (AEP): Free Stock Analysis Report
Zacks Investment Research
