Although the oil and gas market has continued to be volatile, there are still good values to be found. In this article, I will discuss why American Electric Power Company Inc (AEP) can still offer a great opportunity for investors in both the short and long term.
Is American Electric Power Poised to Surge Ahead?
American Electric Power, with its electric power generation, transmission, and distribution to its retail customers, has been the subject of some good news recently, including the receipt of an order from the Ohio Public Utilities Commission regarding its modified Electric Security Plan, which helped with some analysts' decisions to upgrade their opinion and rating of the company's shares.
Based on a recent ruling, the commission's order allows the company to transition to a fully competitive market based rate structure over the next three years, and, between now and June 1, 2015, American Electric Power will be auctioning 10% of its standard service offer loan. This also means that until 2015, there will be no customer rate increases allowed that exceed 12%.
Although American Electric Power shows a somewhat weak operating cash flow of late, the strengths of this company have shown in a number of other areas, including an increase in net income, a rise in share price, and growth in the areas of earnings per share and return on equity.
With its market cap of over $21 billion, American Electric Power boasts a P/E ratio of nearly 13, which stands above the overall 10.6 P/E ratio of the utilities industry as a whole. This, in conjunction with the company's net income growth since last year exceeding that of the electric utilities industry overall, has led analysts to reiterate their buy rating on the shares.
In addition, although American Electric Powers' revenue has dropped slightly from one year prior, this has not hurt the overall bottom line - and in fact, the firm's earning per share have increased - allowing investors to profit from share growth. American Electric Power currently has a dividend yield of 4.4%.
Another potential mover in the energy arena is Apache Corporation (APA). This firm has a long history of using a balanced style of management, and by doing so, has taken on far less debt than most other companies in the industry. Although Apache announced a weak second quarter 2012, this was due primarily from lower oil and natural gas prices, as well as through some disruptions in the company's overall production.
While Apache's $0.17 per share dividend equating to less than a 1% yield is nothing to write home about, where investors have seen real gain is via the company's 13% annualized production over the past two decades. The company's $8.43 earnings per share and estimated 2012 profits of over $10 per share - which equates to a 4.5% rise in sales growth - should help to lead the way for investor profits.
CenterPoint Energy, Inc. (CNP) is also bright in terms of profit for investors, and this is also based primarily through share growth. The firm has a P/E ratio of just under 12. This is higher than the average of 6.6 industry-wide. CenterPoint's second quarter 2012 earnings beat analysts' estimates by $0.02, coming in at $0.27. This was a catalyst in upping the firm's annual earnings per share to between $1.13 and $1.23 from previous estimates of between $1.08 and $1.20.
In its charge ahead for additional growth, CenterPoint recently purchased $275 million of natural gas and processing assets from Martin Midstream Partners L.P., which also includes a 50% operating interest in the Waskom Gas Processing Company. Based on this, company growth is expected to rise even more thanks to these additional assets.
Also on track for short- and long-term growth is SandRidge Energy (SD). SandRidge has reported having estimated reserves of over 1,312 Bcfc, with more than half being in natural gas. The company does not pay investors a dividend, however, tidy profit could still come in the way of share growth. SandRidge is expected to have earnings per share of $0.13 in 2012 and of $0.23 in 2013, due in large part to management's three-year plan of attaining $2 billion in EBITDA.
With all of the positives in the energy sector, however, the news has not been great for FirstEnergy (FE). The firm has seen some struggles of late, including an 8% decline in profits for the second quarter 2012. This is due primarily from lower revenue within SandRidge's regulated distribution segment. Because of this, SandRidge's quarterly earnings per share estimates have been lowered from $0.69 per share to $0.59, along with a drop in fiscal earnings estimates from $3.60 to $3.30 per share.
The Bottom Line
Given the many positive factors, I feel that American Electric Power would be a great profit generator for investors who seek growth in the utilities industry. The company has demonstrated a nice pattern of earnings per share growth over the last two years, in conjunction with a strong P/E ratio that stands well above that of the industry average. Just a few of the green light factors making this company a winner include its increase in net income, EPS growth, and nice return on equity.
Analysts have continued to rate the shares as buy - and for good reason. Plus, with the stock's already upward-moving potential, it has continued to outperform as compared to the overall industry average, as well as in relation to its previous estimates.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.