AEP cut at Evercore ISI as fundamentals remain challenging for utilities
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American Electric Power (NASDAQ:AEP) is little changed in Tuesday's trading as Evercore ISI downgraded shares to In-Line from Outperform with a $102 price target, citing valuation after delivering a 10% total return last year compared with 4% for peer utilities.
While AEP's (AEP) long-term growth prospects remain solid, "the stock has closed the valuation gap - 4% discount currently vs. 12% to start 2022 - and we see limited upside near term as they execute on announced Kentucky and unregulated renewable sales," Evercore ISI analyst Durgesh Chopra wrote.
Evercore shuffled ratings on several utilities as "fundamentals remain challenging" for the group, with high inflation and rising interest rates causing several companies to rebase their earnings expectations.
Chopra sees customer bill increases during winter months rising anywhere from high single digits to 50% driven by higher fuel costs, with gas utilities closer to the high end of the range, and "with elevated bills, we see regulatory risks increasing throughout the year" for utility companies (XLU).
Nevertheless, Chopra upgraded Eversource Energy (NYSE:ES) to Outperform from In-Line after a poor performance in 2022 and raised Consolidated Edison (NYSE:ED) to In-Line from Underperform on an improving risk profile; his top utility sector stock pick is AES Corp (AES).
American Electric Power (AEP) offers "an above-average dividend yield, consistent dividend growth, and a healthy balance sheet despite high investment requirements," Leo Nelissen writes in an analysis posted recently on Seeking Alpha.