Home Investment American Electric (AEP) Unveils Five-Year Investment Plan

American Electric (AEP) Unveils Five-Year Investment Plan

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American Electric Power Company, Inc. (AEP Free Report) recently announced plans to make enhanced capital investments in its regulated operations over the next five-year period. Through this, the utility company aims at providing more advanced, resilient and clean energy solutions.

The company also reaffirmed its 2019 operating earnings guidance at $4.00-$4.20 per share, and its projected annual operating earnings growth rate at 5-7 %.

Details of the Plan

American Electric’s capital investments over the next five years will be focused on advanced infrastructure, innovative technologies and cleaner generation resources. In particular, the company plans on investing $33 billion in capital from 2019 through 2023. The investment includes a 75% share of its transmission and distribution operations to enhance service for customers.

During the five-year period, the company will invest $2.7 billion in new renewable generation, including approximately $2.2 billion for competitive, contracted renewable projects. American Electric also plans on spending approximately $16.6 billion in its transmission businesses and $8.3 billion in distribution businesses.

Impetus on Renewable Energy Resources

American Electric continues to focus on generating cleaner resources. Earlier this year, the company announced plans of cutting carbon dioxide emissions up to 60% by 2030. In line with this, the company now plans on adding more than 8,300 MW of wind and solar generation and more than 2,600 MW of natural gas generation to its regulated generation fleet till 2030.

Furthermore, American Electric has decided on retiring its aging coal-powered unit to lower carbon footprints. The company recently announced to retire its 650-MW coal-powered Oklaunion plant in Texas by September 2020.

Our View

It is evident that the rising investments in regulated businesses and renewable generation projects will not only allow the utility provider to reduce carbon emissions, but also deliver a smart and reliable energy system that will benefit customers across its service territory. Going forward, such long-term strategies will keep the company’s earnings growth steady.

Meanwhile per the U.S. Energy Information Administration (“EIA”), as of April 2018, renewables accounted for 22% of the total U.S. electricity generating capacity, including hydroelectric. The percentage of renewables in the total generation mix is expected to rise, cutting the share of fossil fuel generation. Considering this, the latest commitments made by American Electric in terms of making meaningful investments into renewables should bode well for the company’s profit margin in coming days.

Furthermore, in the context of its financial positioning, American Electric is well supported by its revolving credit facility, which further allows the company to finance its high-growth future plans. Such a solid financial position has enabled it to reward shareholders via dividends, since quite a long time. This is evident as American Electric recently increased its regular quarterly cash dividend in October by 8.1% to 67 cents per share.

Price Movement

In the past six months, shares of the company have gained 13.6% compared with its industry’s growth of 5.8%.

Zacks Rank & Other Stocks to Consider

American Electric currently has a Zacks Rank #2 (Buy). A few other top-ranked stocks in the same industry are Ameren Corporation (AEE Free Report) , PPL Corporation (PPL Free Report) and Atlantic Power Corporation (AT Free Report) . You can see  the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While Ameren sports a Zacks Rank #1, PPL Corporation and Atlantic Power carry a Zacks Rank #2.

Ameren’s earnings estimates have moved up 4.4% to $3.35 in the past 90 days. The company came up with average positive earnings surprise of 15.40% in the last four quarters.

PPL Corporation’s long-term growth is pegged at 5%. The company came up with average positive earnings surprise of 8.48% in the last four quarters.

Atlantic Power’s earnings estimates have moved by 26 cents to 17 cents in the past 90 days. The company came up with average positive earnings surprise of 25.63% in the last four quarters.

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