American Electric Power Company presents a speculative situation, as it does not qualify for either the Defensive Investor or the Enterprising Investor. The Defensive Investor is concerned with the low current ratio, and an insufficient level of earnings growth over the last ten years. The Enterprising Investor takes issue with the level of debt relative to the current assets. As a result, any purchase of American Electric Power Company stock is made with a speculative nature behind it. That said, any speculator interested in pursuing the company should still proceed to the next part of the analysis, which is a determination of the company’s intrinsic value.
With regard to that intrinsic value, the company has grown its EPSmg (normalized earnings) from $2.85 in 2010 to only an estimated $3.13 for 2014. This level of demonstrated growth does not support the market’s implied estimate for earnings growth of 4.86% over the next 7-10 years. The ModernGraham valuation model therefore returns an estimate of intrinsic value below the current price, indicating the company is overvalued at the present time.
Be sure to check out previous ModernGraham valuations of American Electric Power Company for more perspective.
Disclaimer: Â The author did not hold a position in American Electric Power Company (AEP) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. Â Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.