Seeking Alpha
Profile| Send Message| ()  

Its retail volume sales to industrial customers rose consecutively for three quarters as a result of an improving economy in the states it services. Large increases in demand for power came from the metals and paper manufacturing industries. In 2011, sales to industrial customers rose 4% year over year.

Its acquisition of Blue Star energy in March 2012 provided it with an opportunity to grow its retail operation.

Reasons to be bullish on American Electric Power Company (AEP)

  • A positive levered free cash flow of $429 million
  • A five-year cash flow average of $6.6
  • A profit margin of 13%
  • Net income increased from $1.3 billion in 2009 to $1.9 billion in 2011
  • Cash flow per share increased from $6.33 in 2009 to $6.83 per share
  • Sales increased from $13 billion in 2009 to $15 billion in 2011
  • A good yield of 4.7%
  • A decent 5 year dividend growth rate of 3.8%
  • A manageable payout ratio of 61%
  • A projected 3-5 year EPS growth rate of 4.33%
  • It has been paying dividends since 1910
  • A good interest coverage ratio of 10.4
  • A decent free cash flow yield of 4.84%
  • A quarterly earnings growth rate of 10.2%
  • $100K invested for 10 years would have grown to $197K. If the dividends were reinvested the rate of return would have been much higher

Company: American Electric Power Company

Levered Free Cash Flow = 429.18M

Brief Overview

  1. Percentage Held by Insiders = 0.27
  2. Number of Institutional Sellers 12 Weeks = 2
  3. Relative Strength 52 weeks = 71
  4. Cash Flow 5-year Average = 6.6
  5. Profit Margin = 13.7%
  6. Operating Margin = 18.9%
  7. Quarterly Revenue Growth = - 2.8%
  8. Quarterly Earnings Growth = 10.2%
  9. Operating Cash Flow = 3.83B
  10. Beta = 0.34
  11. Percentage Held by Institutions = 61.9%
  12. Short Percentage of Float = 1.00%

Growth

  1. Net Income ($mil) 12/2011 = 1946
  2. Net Income ($mil) 12/2010 = 1214
  3. Net Income ($mil) 12/2009 = 1360
  4. Net Income Reported Quarterly ($mil) = 389
  5. EBITDA ($mil) 12/2011 = 5092
  6. EBITDA ($mil) 12/2010 = 4628
  7. EBITDA ($mil) 12/2009 = 4571
  8. Cash Flow ($/share) 12/2011 = 6.83
  9. Cash Flow ($/share) 12/2010 = 6.73
  10. Cash Flow ($/share) 12/2009 = 6.33
  11. Sales ($mil) 12/2011 = 15116
  12. Sales ($mil) 12/2010 = 14400
  13. Sales ($mil) 12/2009 = 13500
  14. Annual EPS before NRI 12/2007 = 3
  15. Annual EPS before NRI 12/2008 = 3.24
  16. Annual EPS before NRI 12/2009 = 2.97
  17. Annual EPS before NRI 12/2010 = 3.03
  18. Annual EPS before NRI 12/2011 = 3.12

Dividend history

  1. Dividend Yield = 4.76
  2. Dividend Yield 5 Year Average 03/2012 = 4.68
  3. Dividend 5 year Growth 03/2012 = 3.84

Dividend sustainability

  1. Payout Ratio 03/2012 = 0.61
  2. Payout Ratio 5 Year Average 03/2012 = 0.55

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 4.33
  2. 5 Year History EPS Growth 03/2012 = 0.42
  3. ROE 5 Year Average 03/2012 = 11.39
  4. Debt/Total Cap 5 Year Average 03/2012 = 55.4
  5. Current Ratio 03/2012 = 0.66
  6. Current Ratio 5 Year Average = 0.74
  7. Quick Ratio = 0.44
  8. Interest Coverage Quarterly = 10.43

Conclusion

Long-term investors can use strong pullbacks to open up positions in stocks they would not mind owning for the long haul. A great way to get into a stock at a price of your choosing is to sell puts at strikes you would not mind owning the stock at. Investors willing to take on a bit more risk might find this article to be of interest - Alpha Natural Resources 1 Of 3 Candidates Trading Below book.

Disclaimer

This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies - let the buyer beware.

Source: American Electric Power: An Appealing Dividend Play To Consider For Your Portfolio

Additional disclosure: EPS and Price vs industry charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com. Ycharts data sourced from ycharts.com.