AEP (AEP) Down 30.2% Since Last Earnings Report: Can It Recover?

It has been about a month since American Electric Power (AEP) last reported earnings. The stock has lost about 30.2% in that time, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is AEP due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the key drivers.

American Electric’s Q4 earnings are consistent, revenues are down YoY

American Electric Power reported fourth-quarter 2019 adjusted earnings per share of 60 cents, which was in line with the Zacks Consensus Estimate. However, bottom line fell 16.7% from 72 cents in the year-ago quarter.

The company reported GAAP earnings per share of 31 cents, compared to 74 cents in the year-ago quarter.

The year-over-year decline can be attributed to lower revenues.

For 2019, the company reported adjusted earnings per share of $4.24, which topped the Zacks Consensus Estimate of $4.22 by 0.5%. Profit for the full year increased by 7.3% compared to the previous year and was at the high end of the assumed range of USD 4.14-4.24 per share.

Total revenues

American Electric’s fourth-quarter revenues of $3.6 billion missed the Zacks Consensus Estimate of $4.1 billion. The reported number was down 5.3% from $3.8 billion in the year-ago quarter.

For 2019, the company reported revenues of $15.6 billion, missing the Zacks Consensus Estimate of $16 billion by 2.5%. The reported figure was also down 3.7% from the year-ago figure of $16.2 billion.

Quarterly highlights

Operating expenses for the quarter were $2,038.7 million compared to $1,912.8 million a year earlier.

Operating income was $471.4 million, down 16.3% from $563.1 million in the same quarter last year.

Segment efficiency

Vertically integrated utility operations: Operating profits for the quarter rose to $136.5 million from $130.5 million a year ago.

Broadcast and distribution tools: Operating profit was $71 million, up from $132.1 million a year ago.

AEP Transmission Holdco: This segment generated operating income of $111.5 million, up from $791.5 million in the fourth quarter of 2018.

Generation and marketing: Operating profit was $0.1 million, compared to $35.2 million in the year-ago quarter.

Corporate and others: Operating losses were $25 million compared to an operating loss of $34.9 million in the prior-year quarter.

Financial update

As of December 31, 2019, American Electric had cash and cash equivalents of $246.8 million compared to $234.1 million as of December 31, 2018.

Long-term debt was $25.13 billion as of December 31, 2019, compared to $21.65 billion as of December 31, 2018.

Cash flow from operations was $4.27 billion in 2019 compared to $5.22 million in 2018.

2019 Guidelines

American Electric maintained its 2020 operating earnings guidance in the range of $4.25 to $4.45 per share. The Zacks Consensus Estimate for 2020 earnings of $4.39 lies above the company’s mid-point estimate.

How have estimates changed since then?

Over the last month, investors have witnessed an upward trend in estimate revisions.

VGM results

Currently, AEP has a weak Growth Score of D, but its Momentum Score is performing slightly better at C. Plotting a somewhat similar path, the stock is rated D on the value side, placing it in the bottom 40% for this investment strategy.

Overall, the stock has a Total VGM Score of D. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for the stock are trending upwards, and the scale of these revisions looks promising. Notably, AEP carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

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