American Electric PowerAEP

Morningstar Rating

Stock Research and Analysis

by Travis Miller

With a widely diversified stable of service territories and assets across 11 U.S. states, American Electric Power could be a good candidate for a core holding in an income investor's portfolio. However, economic weakness throughout the United States Read more

Bulls Say

Because it earns regulated returns in many different state jurisdictions, AEP's earnings are protected from the impact of one adverse ruling.

AEP's decision to accelerate its environmental investments in its coal plants should allow it to lower fuel costs by buying cheaper grades of coal.

AEP's proposed high-voltage link between West Virginia and New Jersey could be hugely valuable by connecting the company's low-cost Ohio coal fleet to high-priced East Coast power markets.

AEP's program of discretionary capital spending, which can change to match the company's cash situation, should help safeguard its credit rating and dividend. Read more

Bears Say

Despite some early successes, clean coal still has a long way to go to win full approval in Ohio or West Virginia.

Some of AEP's coal purchases are not directly recoverable as pass-throughs, which exposes the company to a margin squeeze from higher coal prices.

Fully regulated utilities like AEP are especially sensitive to interest rate increases and inflation.

Greenhouse gases are a long-term problem for coal plants because there currently is no economically feasible technology to eliminate carbon dioxide emissions. Read more

Strategy

AEP has sharpened its focus on its regulated utilities and is reinvesting its surplus capital. Coal power plants remain the centerpiece of AEP's business, requiring the firm to invest billions of dollars Read more

Management

Michael Morris was elected president, CEO, and chairman in 2004, replacing longtime CEO E. Linn Draper. In 2007, Morris received no bonus on top of his base salary of $1.2 million, but he did recognize more than $15.5 million in restricted stock awards Read more

Profile

American Electric Power is one of the largest utilities in the U.S., delivering power to more than 5 million customers in 11 states. It is the second-largest generator of Read more

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