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AEP (AEP) Up 5.1% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for American Electric Power (AEP - Free Report) . Shares have added about 5.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is AEP due for a pullback? 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 important catalysts.

American Electric Posts In-Line Q4 Earnings, Sales Miss

American Electric reported fourth-quarter 2018 operating earnings per share (EPS) of 72 cents, in line with the Zacks Consensus Estimate.

The bottom line declined 15.3% from 85 cents per share in the year-ago quarter.

For 2018, American Electric’s earnings were $3.95 per share, up from $3.68 in the year-ago period. The full-year earnings figure surpassed the
Zacks Consensus Estimate of $3.82 by 3.4%.

Total Revenues

American Electric’s fourth-quarter revenues of $3.8 billion were in line with the top line figure in the year-ago quarter. The reported figure however missed the Zacks Consensus Estimate of $3.96 billion by 4.2%.

In 2018, total revenues increased 5% year over year from $15.43 billion to $16.20 billion. Revenues also surpassed the Zacks Consensus Estimate of $15.81 billion by 2.46%.

Quarterly Highlights

Operating expenses in the reported quarter were $1,912.8 million compared with $1,725 million a year ago.

Operating income in the quarter was $583.1 million, down 27.3% from $802.4 million in the year-ago quarter.

Segmental Performance

Vertically Integrated Utility Operations: Operating earnings in the quarter declined to $130.5 million from $179.4 million a year ago.

Transmission & Distribution Utilities: Operating earnings were $132.1 million in the quarter, up from $123.9 million a year ago.

AEP Transmission Holdco: This segment generated operating income of $92.1 million, up from $78.5 million recorded in the fourth quarter of 2017.

Generation and Marketing: Operating earnings were $35.1 million, up from $24.5 million in the year-ago quarter.

Corporate & Other: Operating losses were $34.9 million, against the operating profit of $13.8 million registered in the year-ago quarter.

Financial Update

As of Dec 31, 2018, American Electric had cash and cash equivalents of $234.1 million compared with $214.6 million as of Dec 31, 2017.

Long-term debt was $21.65 billion as of Dec 31, 2018, compared with $19.42 billion as of Dec 31, 2017.

Cash flow from operations was $5,223.2 million at the end of 2018 compared with $4,270.4 million at the end of 2017.

2019 Guidance

American Electric has reaffirmed its 2019 operating earnings guidance in the range of $4.00–$4.20. The company also reaffirms 5-7% operating earnings growth rate for 2019.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, AEP has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, AEP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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