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American Electric Power (AEP) is among the leading utility companies in the U.S. and has been making efforts to increase its regulated operations, which will allow for more earnings stability. Earlier this week, the company reported a healthy financial performance for 4Q2014 and full year 2013. The company is likely to benefit from increasing regulated operations and cost saving measures in the future. Also, the company offers a solid dividend yield of 4.3%, which makes it a good investment option for dividend-seeking investors. Moreover, the stock is currently trading at an attractive forward P/E of 13.65x, as compared to the industry's forward P/E of 15.4x. Therefore, I am bullish on the stock.

Financial Performance
The company has delivered a healthy financial performance in recent years. Recently, the company reported healthy 4Q2013 financial results, registered operating earnings per share of $0.60, up 20% as compared to the corresponding period last year, beating consensus estimates of $0.56. Also, the company was able to increase its quarterly revenues to $3.8 billion in 4Q2013, up from $3.6 billion in 4Q2012. The company was also able to grow its full year 2013 operating EPS to $3.04, up from $2.60 in 2012. AEP registered total annual revenues of $15.4 billion for 2013, representing an increase of 3.4% as compared to the corresponding period last year. Moreover, the company reaffirmed its earnings guidance for 2014 of $3.2-$3.4 per share.

AEP has been posting healthy performance in recent years and offering shareholder-healthy returns. In the last five years, the company has outperformed the utility industry, and the trend is expected to continue in the future. The following table shows total shareholder return for AEP in comparison to the S&P 500 Utilities Index.

Dividends and Balance Sheet
The company offers a solid dividend yield of 4.3% and has been increasing dividends consistently over the years; AEP increased its annual dividend by 6.4% in 2013. Also, the company has been making efforts to reduce its balance sheet risk and strengthen its credit outlook. The company has successfully lowered its debt to total capitalization to 54.3% in 2013, from 57.2% in 2009. Also, the company consistently increased its pension liability funding to 99% in 2013, up from 74% in 2009. The following table shows total debt to total capitalization and pension liability funding.

Source: Investors Presentation

Capital Spending and Cost Saving
The company has been aggressively making capital expenditures to expand its operations, which remains one of the most important earnings growth drivers in the future. The company plans to incur capital expenditure of more than $11 billion from 2014-2016, out of which approximately 95% would be directed towards regulated operations. AEP plans to spend $3.8 billion per year in the next three years to expand its operations. An increase in regulated operations is expected to lead to a 7% rate base growth. Transmission business expansion is among AEP's priorities, and the business segment has displayed a robust growth in recent quarters; AEP's transmission business segment experienced operating earnings per share growth of 107% and 81% year-on-year, in 4Q2013 and FY2013, respectively. The following table shows the capital spending forecast from 2014-2016.

Source: Investors Presentation

Other than an aggressive capital spending plan, the company is targeting cost savings and O&M efficiency to support its earnings growth. The company has forecasted additional annual pretax earnings of approximately $230 million, as a result of $140 million of cost reduction and $90 million of incremental revenues. The following table shows the business segments targeted by the company to reduce costs.

Source: Investors Presentation

Conclusion
AEP is among the leading utility companies of the U.S. whose capital spending outlook remains robust, which is likely to fuel its future earnings growth. Also, the company has been increasing its regulated operations, which will stabilize its earnings and lower business risk profile. Moreover, the stock remains a good investment option for dividend-seeking investors, as it offers a solid dividend yield of 4.3%. Furthermore, current valuations for AEP remain attractive, as the stock is trading at a lower forward P/E of 13.65x as compared to the industry's forward P/E of 15.4x. Due to the abovementioned factors, I remain bullish on the stock.

Source: A Solid Regulated Earnings Outlook Key To American Electric Power's Promising Future