American Electric Power Co Inc (AEP) Valuation

Flash Player 9 or higher is required to view the chart Click here to download Flash Player now

Company Profile (obtained from Google Finance): American Electric Power Company, Inc. (AEP) is a public utility holding company engaged in the generation, transmission and distribution of electric power to retail customers, and supplying and marketing of electric power at wholesale to other electric utility companies, municipalities and other market participants. The subsidiaries of the Company include Appalachian Power Company (APCo), Columbus Southern Power Company (CSPCo), Indiana Michigan Power Company (I&M) Ohio Power Company (OPCo), Public Service Company of Oklahoma (PSO) and Southwestern Electric Power Company (SWEPCo). The public utility subsidiaries of AEP are engaged in providing electric service, consisting of generation, transmission and distribution, on an integrated basis to their retail customers.

ModernGraham Comments: None at this time.

Defensive and Enterprising Investor Tests:

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
6. Moderate PEmg ratio – PEmg is less than 20 – PASS
7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests: Score = 3/5

1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
3. Earnings Stability – positive earnings per share for at least 5 years – PASS
4. Dividend Record – currently pays a dividend – PASS
5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary:

• Last Updated    10/4/2009
• MG Value    $44
• MG Opinion    Undervalued
• Value Based on 3% Growth    $41
• Value Based on 0% Growth    $24
• Market Implied Growth Rate    1.09%
• Net Current Asset Value (NCAV)    -$61.47
• PEmg    10.69
• Current Ratio    0.78
• PB Ratio    1.13

Key Data:

Balance Sheet – 6/30/2009

• Current Assets    $4,224,000,000
• Current Liabilities    $5,393,000,000
• Total Debt    $15,350,000,000
• Total Assets    $46,338,000,000
• Intangible Assets    $0
• Goodwill    $76,000,000
• Total Liabilities    $33,532,000,000
• Outstanding Shares    476,780,000

Earnings Per Share – Diluted

• 2009 (estimate)    $2.57
• 2008    $3.39
• 2007    $2.86
• 2006    $2.50
• 2005    $2.63
• 2004    $2.84
• 2003    $1.36
• 2002    $1.46
• 2001    $2.98
• 2000    $0.56
• 1999    $3.07

Earnings Per Share – Modern Graham

• 2009 (estimate)    $2.84
• 2008    $2.93
• 2007    $2.62
• 2006    $2.38
• 2005    $2.30
• 2004    $2.04

Valuation History:

• 10/4/09 – Value $44, Actual Price $30.37, Undervalued & Defensive