American Electric Power Company, Inc. (AEP) is actively investing in both infrastructure upgrades and renewable energy generation, aiming to improve the reliability of its operations and serve its utility customers more effectively. The company has outlined a $43 billion capital investment plan for the 2024-2028 period, focusing on its core regulated operations, contracted renewables, and wire infrastructure. This investment strategy is intended to enhance customer reliability and support long-term earnings growth, projected at 6-7%.
A significant portion of this investment, approximately $27.3 billion, will be directed towards transmission and distribution operations, creating a more efficient grid and providing consumers with customized energy solutions. In the realm of clean energy, AEP has received regulatory approvals to acquire 2,811 megawatts of owned renewable generation facilities, totaling an estimated cost of $6.6 billion. The company further plans to invest $9.4 billion in controlled renewable expansion between 2024 and 2028, bolstering its renewable generation portfolio over the coming years.
However, AEP faces headwinds in the form of rising interest rates and a sizable debt burden. As utility companies rely heavily on both short and long-term borrowings, the current interest rate environment in the United States has resulted in increased interest expenses for AEP. In the second quarter of 2024, the company’s interest expenditure rose by 1.2% year over year. If this trend persists, it could negatively impact AEP’s financial health in the future.
As of June 30, 2024, AEP held $40 billion in long-term debt, while its cash equivalents amounted to only $0.47 billion. Simultaneously, current debt stood at $3.75 billion. This imbalance, with both current and long-term debt levels significantly exceeding cash reserves, indicates a potentially weak solvency position for AEP.
Despite these challenges, AEP’s stock performance has been positive in recent months. Shares have climbed 11.8% over the past three months, outperforming the industry’s average growth of 3.6%.
Investors seeking alternative options within the utility sector might consider these better-ranked stocks: DTE Energy Company (DTE), The AES Corporation (AES), and NiSource Inc. (NI), all carrying a Zacks Rank #2 (Buy). DTE Energy boasts an impressive long-term earnings growth rate of 8.1% and has consistently delivered positive earnings surprises. AES has also exhibited strong earnings performance, averaging a 19.18% surprise over the last four quarters, with projected sales growth of 3.6% for 2024. NiSource, with a long-term earnings growth rate of 6%, has consistently exceeded earnings expectations, averaging a 20.64% surprise over the past four quarters.
