On Thursday, JPMorgan downgraded American Electric Power (NASDAQ:AEP) stock from Overweight to Neutral, adjusting the price target to $102 from the previous $109. The move comes as the firm acknowledges the positive organizational changes introduced by new CEO Bill Fehrman, aimed at aligning the utility's objectives with state goals and improving regulatory outcomes.
According to InvestingPro data, AEP currently trades at a P/E ratio of 18.7x and has maintained an impressive track record of dividend payments for 54 consecutive years, with a current yield of 4%.
Despite the company's potential in increasing regulated generation, the analyst noted that American Electric Power is predominantly a wires company. The firm sees more upside in companies with greater generation capabilities, such as XEL, due to trends like data center growth and onshoring.
The analyst pointed out that achieving a roughly 30 basis point return on equity (ROE) improvement by 2025 is a challenging starting point for the new CEO. InvestingPro analysis reveals the company's current ROE stands at 10%, while operating with a significant debt burden, as indicated by a debt-to-equity ratio of 1.66.
The analyst also mentioned that changes in corporate tax rates or tax credits could exert balance sheet pressure on American Electric Power. The scrutiny of multi-state wires-heavy companies within markets like PJM and ISO-NE remains high, which contributes to the analyst's perspective.
The report further highlights the extended journey American Electric Power faces in mending stakeholder relationships at the local level. Given these challenges and a general preference for generation-focused growth, JPMorgan believes there are stronger risk/reward propositions available in other stocks within their coverage area. This assessment has led to the revised price target and neutral stance on AEP's stock as the company embarks on its strategic transition.
In other recent news, American Electric Power (AEP) reported solid third-quarter operating earnings of $1.85 per share, totaling $985 million. The company has adjusted its 2024 full-year earnings guidance to $5.58 to $5.68 per share and introduced a 2025 operating earnings guidance range of $5.75 to $5.95 per share. AEP's long-term earnings growth rate is projected at 6% to 8%, supported by a $54 billion capital plan for 2025-2029.
In other developments, BMO Capital has made adjustments to AEP's stock price target. Initially, the firm raised the price target to $108.00 from the previous $104.00, maintaining an Outperform rating on the stock. However, following AEP's weaker-than-expected guidance for the year 2025, BMO Capital later revised the price target down to $104.00, while still maintaining the Outperform rating.
These recent changes to AEP's stock price target and earnings guidance reflect the company's ongoing financial performance and future growth prospects. BMO Capital's adjustments are based on the firm's analysis of AEP's disclosures and estimates, highlighting the potential for higher growth and more favorable regulatory outcomes.
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