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American Electric Power Co Inc Stock Buy Recommendation Reiterated (AEP)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK (TheStreet) -- American Electric Power (NYSE:AEP) has been reiterated by TheStreet Ratings as a buy with a ratings score of A . The company's strongest point has been its expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

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Highlights from the ratings report include:

  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • AEP, with its decline in revenue, underperformed when compared the industry average of 12.9%. Since the same quarter one year prior, revenues slightly dropped by 4.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • AMERICAN ELECTRIC POWER CO's earnings per share declined by 25.9% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, AMERICAN ELECTRIC POWER CO increased its bottom line by earning $3.24 versus $2.53 in the prior year. For the next year, the market is expecting a contraction of 5.9% in earnings ($3.05 versus $3.24).
  • The gross profit margin for AMERICAN ELECTRIC POWER CO is currently lower than what is desirable, coming in at 33.60%. Regardless of AEP's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, AEP's net profit margin of 11.70% compares favorably to the industry average.
  • Even though the current debt-to-equity ratio is 1.21, it is still below the industry average, suggesting that this level of debt is acceptable within the Electric Utilities industry. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.35 is very low and demonstrates very weak liquidity.

American Electric Power Company, Inc., a public utility holding company, engages in the generation, transmission, and distribution of electric power to retail customers. It generates electricity using coal and lignite, natural gas, nuclear energy, and hydroelectric energy. American Electric has a market cap of $19.89 billion and is part of the utilities sector and utilities industry. The company has a P/E ratio of 13.8, below the S&P 500 P/E ratio of 17.7. Shares are down 0.8% year to date as of the close of trading on Wednesday.

You can view the full American Electric Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

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