UBS maintains sell rating on AEP stock with $95 price target

On Tuesday, UBS analyst Ross Fowler reaffirmed a Sell rating on shares of American Electric Power (NASDAQ:AEP) with a steady price target of $95.00, below the current trading price of $102.52. According to InvestingPro data, AEP is currently trading at a P/E ratio of 18.3x and appears overvalued based on its Fair Value analysis. Fowler’s analysis acknowledged AEP’s recent move to address its equity needs through a $2.0 billion forward equity sale, which aligns with the company’s financial strategy. This sale contributes to the company’s goal to maintain a 14% to 15% funds from operations (FFO) to debt ratio, supporting its long-term earnings per share (EPS) growth rate target of 6% to 8%.

American Electric Power recently announced the forward equity sale as a strategic step to meet its stated equity requirements up to the year 2029. The transaction is seen as a positive move to eliminate uncertainty regarding the timing of the company’s equity needs. This equity, along with the January sale of transmission assets for $2.8 billion in cash proceeds, means AEP has secured $4.8 billion of the $5.35 billion in equity it needs to fund its capital expenditure plan, which amounts to $54.4 billion through 2029. InvestingPro data shows AEP has maintained dividend payments for 55 consecutive years and has raised its dividend for 15 straight years, with a current yield of 3.57%.

Despite the proactive financial measures, UBS suggests that a significant re-rating of AEP’s stock multiple is contingent upon consistent and favorable regulatory outcomes. The firm is closely monitoring developments in West Virginia and Ohio, as pending cases and legislation in these states could influence recoveries related to Ohio Valley Electric Corporation (OVEC) and the scheduling of future rate cases. InvestingPro analysis indicates AEP operates with a significant debt burden, with short-term obligations exceeding liquid assets. However, the company maintains a "Fair" overall financial health score of 2.46 out of 5, suggesting stable operational performance despite these challenges.Want deeper insights? Access the comprehensive Pro Research Report for AEP, along with 1,400+ other top stocks, exclusively on InvestingPro.

The equity sale is a part of American Electric Power’s broader efforts to solidify its financial position and continue its growth trajectory. With a substantial portion of its equity needs met, the company appears to be on a stable path to execute its extensive capital expenditure plan over the next several years.

The focus now shifts to the regulatory environment, which has the potential to impact AEP’s financial performance and stock valuation. As such, investors and stakeholders will likely watch for updates on the West Virginia case and Ohio legislation, which could play crucial roles in the utility company’s future.

In other recent news, American Electric Power has announced a $2 billion common stock offering, with Citigroup (NYSE:C) and Barclays (LON:BARC) acting as joint book-running managers. The company has entered into forward sale agreements with these financial institutions, allowing for settlement by the end of 2026. This move is part of a broader financial strategy, which includes a forward equity sale priced at $102 per share, expected to generate approximately $2.3 billion. Additionally, the company plans to sell a minority interest in its transmission operations, aiming to cover its $5.35 billion equity requirements outlined in its five-year capital plan.

In terms of analyst activity, BMO Capital Markets has increased the price target for American Electric Power from $107.00 to $111.00, maintaining an Outperform rating. Mizuho (NYSE:MFG) Securities also raised its price target from $93.00 to $106.00, although it kept a Neutral rating. These adjustments reflect the analysts’ consideration of the company’s recent financial disclosures and strategic moves, including executive changes.

Furthermore, American Electric Power has disclosed the resignation of Therace M. Risch, Executive Vice President and Chief Information and Technology Officer, effective April 1, 2025. The company has not announced a successor, and the impact of this leadership change is yet to be seen. Investors will be watching closely as the company navigates these developments and executes its capital plan.

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