American Electric Power downgraded to Neutral at BofA after regulatory rulings
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American Electric Power (NASDAQ:AEP) on Monday was downgraded to a Neutral investment rating from Buy by analysts at Bank of America. They said a pair of rulings by the Federal Energy Regulatory Commission (FERC) negatively affected the electric utility.
The commission rejected AEPâs (AEP) proposed sale of its Kentucky Power utility to Algonquin Power & Utilities (AQN). The commission also found that AEPâs (AEP) regional transmission organizations (RTOs) in Ohio didnât qualify for whatâs known as an adder of 50 basis points on their tariffs. The RTOs are required to make refunds for the amount collected since late February.
The rejection of the Kentucky Power deal will have a small effect on earnings, but it does raise doubts about the credibility of AEPâs (AEP) management, according to BofA.
âMore relevant for shares prospectively is that the new management team failed to execute on a key strategic initiative that has been pending for over a year,â Julien Dumoulin-Smith, analyst at BofA, said in a Dec. 19 report. âAs recently as the October analyst day and November marketing, AEP (AEP) indicated it was confident in a successful Kentucky close.â
The ruling on the RTO adder also is likely to have a minor effect on earnings of less than 1%, with AEP (AEP) affirming that it didnât plan to update its guidance. BofA lowered its price target on AEP (AEP) to $98 from $101 based on a change to the earnings multiple used to value the shares.