American Electric's Potential Not Yet Priced In, Says Analyst

American Electric Power Company Inc AEP is a utility company that recently announced investments into renewable energy.

The Analyst

Morgan Stanley's Stephen Byrd upgraded the stock from Equal-weight to Overweight and increased the price target from $80 to $83.

The Thesis

The analyst sees a 7 percent EPS growth potential and his current price target implies a 9 percent upside potential for the stock. The stock trades at 4 percent discount to large and mid-cap regulated peers on consensus estimates, while it trades with a discount of 6 percent on Morgan Stanley's estimates. Byrd is optimistic about investments in the wind energy, which is now the cheapest form of energy.

The main growth driver for the company is investing in grid, said the analyst and added that American Electric Power Company needs to spend $2.5 billion annually on its transmission system. The company has a strong balance sheet, with a relatively modest level of holdco debt, said the analyst. He doesn't expect that the tax reform is going to have a major effect on the company's cash flows.

The Price Action

American Electric Power Company traded about 1 percent higher Wednesday. It recently reached its 52-week high of $78.07.