On October 26, 2011, American Electric Power Company Inc. (AEP), a public utility holding company, posted mixed third-quarter 2011 results.
In the paragraphs that follow, we cover the recent earnings announcement, subsequent analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation for the stock.
American Electric Power posted a strong third quarter 2011 adjusted EPS of $1.17, beating the year-ago figure of $1.15 and the Zacks Consensus Estimate of $1.14.
GAAP earnings during the quarter were $1.93 per share compared with $1.16 in the year-ago period.
The difference between operating and GAAP earnings of 76 cents per share during the reported quarter was due to a gain of 88 cents resulting from a favorable Supreme Court decision, offset by a loss of 6 cents related to the impairment of Sporn Plant Unit, a 5-cent loss due to the suspended scrubber project on the Muskingum River Plant and 1 cent relating to a settlement in Ohio.
American Electric Power reported net revenue of $4.3 billion in the third quarter, below the Zacks Consensus Estimate of $4.78 billion but ahead of the year-ago revenue of $4.1 billion.
(Read our full coverage on this earnings report: AEP Beats EPS, Sales Slip)
Agreement of Analysts
Estimate revision trends for the upcoming quarter and fiscal 2011 portrayed mixed sentiments among most of the analysts covering the stock.
Over the last 7 days, 2 out of 8 analysts following the stock revised their estimates upward for the fourth quarter of 2011 while 3 moved downward.
2 out of 13 analysts revisited their estimates for fiscal 2011 adjusting one each it in the upward and downward directions.
Magnitude of Estimate Revisions
The magnitude of estimate revisions for American Electric Power depicts a slightly bearish outlook for the upcoming quarter. Over the last 7 days the consensus estimate for the fourth quarter of fiscal 2011 has gone down by 2 cents to 41 cents a share. The past one week also saw the fiscal 2011 estimate go down by a penny to $3.11.
The bearish trend can be attributed to pending regulatory decisions for American Electric Power’s 2012 Electric Security Plan (ESP) case in Ohio; a rate case in Virginia. Both are likely to be resolved in the ongoing quarter. However, pending resolution of these issues, the future earnings trend is uncertain.
Our Recommendation
American Electric Power is experiencing a growth in industrial volume. In the third-quarter 2011 results, the sector saw a 5% jump in volume owing to increased production at its metals customers and refiners. We view the growth in industrial demand as a significant indicator of a reviving economy, a fact that will surely benefit the company going forward.
We appreciate the decision taken by the company to increase shareholder value through payment of increased dividends.
American Electric Power has a long-standing record of consistent dividend payments since July 1910. In October 2011, the company increased its quarterly dividend by 2.2% to 47 cents per share. The company at present shells out an annualized dividend of $1.88 per share, yielding 4.8%, which is very attractive compared to the 10-year treasury bond yield of 2.3%.
The company presently retains a short-term Zacks #3 Rank, which translates into a short-term Hold rating. We have a long-term Neutral recommendation on the stock. Some of its main competitors are Duke Energy Corporation (DUK) and Entergy Corporation (ETR).
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 derives revenues mainly from power generation.
