On Monday, BMO (TSX:BMO) Capital adjusted its outlook on American Electric Power (NASDAQ:AEP), raising the price target to $108.00 from the previous $104.00. The firm maintained an Outperform rating on the utility company's stock. The revision follows American Electric Power's disclosures during the third-quarter 2024 earnings call and additional details from the Edison Electric Institute (EEI) meeting.
The analyst from BMO Capital has updated their forecast based on the latest company disclosures, which now suggests a 6.0% earnings per share (EPS) Compound Annual Growth Rate (CAGR) from 2024 to 2028. This projection is slightly more conservative compared to the company's own rebased outlook of 6-8%. Despite the more cautious stance, BMO Capital sees potential for higher growth than their forecast.
The firm outlines several factors that could contribute to an upside in American Electric Power's performance. These include the possibility of higher load growth than BMO's conservative estimates, the potential for alternative financing solutions that could reduce equity dilution, and about $10 billion in incremental capital expenditures (CapEx). Additionally, BMO anticipates that American Electric Power could experience an improvement in Return on Equity (ROE) due to more favorable regulatory outcomes over time.
Maintaining the Outperform rating, BMO Capital expresses confidence in American Electric Power's prospects. The updated price target of $108.00 is justified by the analyst's market-to-model (M-T-M) and sum-of-the-parts (SOTP) valuation approach, which reflects the positive factors that could enhance the company's financial performance in the coming years.
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