Intrinsic value of American Electric Power - AEP

Previous Close

$80.01

  Intrinsic Value

$9.25

stock screener

  Rating & Target

str. sell

-88%

Previous close

$80.01

 
Intrinsic value

$9.25

 
Up/down potential

-88%

 
Rating

str. sell

We calculate the intrinsic value of AEP stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 39.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  12.20
  11.48
  10.83
  10.25
  9.72
  9.25
  8.83
  8.44
  8.10
  7.79
  7.51
  7.26
  7.03
  6.83
  6.65
  6.48
  6.33
  6.20
  6.08
  5.97
  5.88
  5.79
  5.71
  5.64
  5.57
  5.52
  5.47
  5.42
  5.38
  5.34
Revenue, $m
  17,307
  19,294
  21,383
  23,575
  25,867
  28,261
  30,755
  33,352
  36,053
  38,861
  41,780
  44,813
  47,965
  51,241
  54,647
  58,190
  61,875
  65,712
  69,708
  73,871
  78,211
  82,738
  87,462
  92,393
  97,543
  102,925
  108,550
  114,432
  120,584
  127,022
Variable operating expenses, $m
  16,025
  17,865
  19,799
  21,828
  23,950
  26,165
  28,474
  30,878
  33,378
  35,978
  38,674
  41,482
  44,399
  47,432
  50,585
  53,864
  57,276
  60,827
  64,526
  68,380
  72,397
  76,587
  80,960
  85,524
  90,292
  95,273
  100,480
  105,925
  111,620
  117,580
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  16,025
  17,865
  19,799
  21,828
  23,950
  26,165
  28,474
  30,878
  33,378
  35,978
  38,674
  41,482
  44,399
  47,432
  50,585
  53,864
  57,276
  60,827
  64,526
  68,380
  72,397
  76,587
  80,960
  85,524
  90,292
  95,273
  100,480
  105,925
  111,620
  117,580
Operating income, $m
  1,281
  1,429
  1,584
  1,747
  1,918
  2,096
  2,281
  2,474
  2,675
  2,884
  3,106
  3,331
  3,566
  3,809
  4,062
  4,326
  4,600
  4,885
  5,182
  5,492
  5,814
  6,151
  6,502
  6,869
  7,251
  7,651
  8,070
  8,507
  8,964
  9,443
EBITDA, $m
  3,529
  3,934
  4,361
  4,807
  5,275
  5,763
  6,272
  6,801
  7,352
  7,925
  8,520
  9,138
  9,781
  10,449
  11,144
  11,866
  12,618
  13,400
  14,215
  15,064
  15,949
  16,872
  17,836
  18,841
  19,891
  20,989
  22,136
  23,335
  24,590
  25,903
Interest expense (income), $m
  849
  1,232
  1,539
  1,863
  2,203
  2,559
  2,932
  3,321
  3,727
  4,150
  4,589
  5,046
  5,521
  6,014
  6,527
  7,060
  7,614
  8,190
  8,790
  9,414
  10,064
  10,741
  11,447
  12,184
  12,952
  13,755
  14,592
  15,468
  16,383
  17,340
  18,341
Earnings before tax, $m
  49
  -110
  -278
  -455
  -641
  -836
  -1,040
  -1,253
  -1,475
  -1,705
  -1,940
  -2,189
  -2,448
  -2,718
  -2,997
  -3,288
  -3,590
  -3,905
  -4,232
  -4,572
  -4,927
  -5,297
  -5,682
  -6,084
  -6,503
  -6,941
  -7,398
  -7,876
  -8,375
  -8,898
Tax expense, $m
  13
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  36
  -110
  -278
  -455
  -641
  -836
  -1,040
  -1,253
  -1,475
  -1,705
  -1,940
  -2,189
  -2,448
  -2,718
  -2,997
  -3,288
  -3,590
  -3,905
  -4,232
  -4,572
  -4,927
  -5,297
  -5,682
  -6,084
  -6,503
  -6,941
  -7,398
  -7,876
  -8,375
  -8,898

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  72,717
  81,065
  89,846
  99,055
  108,686
  118,742
  129,222
  140,133
  151,483
  163,283
  175,546
  188,290
  201,533
  215,298
  229,610
  244,494
  259,981
  276,101
  292,890
  310,383
  328,619
  347,639
  367,486
  388,206
  409,845
  432,456
  456,091
  480,805
  506,657
  533,708
Adjusted assets (=assets-cash), $m
  72,717
  81,065
  89,846
  99,055
  108,686
  118,742
  129,222
  140,133
  151,483
  163,283
  175,546
  188,290
  201,533
  215,298
  229,610
  244,494
  259,981
  276,101
  292,890
  310,383
  328,619
  347,639
  367,486
  388,206
  409,845
  432,456
  456,091
  480,805
  506,657
  533,708
Revenue / Adjusted assets
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
Average production assets, $m
  53,824
  60,003
  66,502
  73,318
  80,448
  87,890
  95,648
  103,724
  112,125
  120,859
  129,936
  139,369
  149,171
  159,360
  169,952
  180,969
  192,432
  204,365
  216,791
  229,740
  243,238
  257,316
  272,006
  287,342
  303,359
  320,095
  337,589
  355,882
  375,017
  395,040
Working capital, $m
  -1,350
  -1,505
  -1,668
  -1,839
  -2,018
  -2,204
  -2,399
  -2,601
  -2,812
  -3,031
  -3,259
  -3,495
  -3,741
  -3,997
  -4,262
  -4,539
  -4,826
  -5,126
  -5,437
  -5,762
  -6,100
  -6,454
  -6,822
  -7,207
  -7,608
  -8,028
  -8,467
  -8,926
  -9,406
  -9,908
Total debt, $m
  28,508
  34,494
  40,790
  47,392
  54,298
  61,508
  69,022
  76,845
  84,983
  93,444
  102,237
  111,374
  120,869
  130,739
  141,000
  151,672
  162,776
  174,334
  186,372
  198,915
  211,990
  225,627
  239,857
  254,713
  270,229
  286,441
  303,387
  321,107
  339,643
  359,038
Total liabilities, $m
  52,138
  58,124
  64,420
  71,022
  77,928
  85,138
  92,652
  100,476
  108,614
  117,074
  125,867
  135,004
  144,499
  154,369
  164,630
  175,302
  186,406
  197,965
  210,002
  222,545
  235,620
  249,257
  263,488
  278,343
  293,859
  310,071
  327,017
  344,737
  363,273
  382,668
Total equity, $m
  20,579
  22,941
  25,427
  28,032
  30,758
  33,604
  36,570
  39,658
  42,870
  46,209
  49,680
  53,286
  57,034
  60,929
  64,980
  69,192
  73,574
  78,137
  82,888
  87,838
  92,999
  98,382
  103,999
  109,862
  115,986
  122,385
  129,074
  136,068
  143,384
  151,039
Total liabilities and equity, $m
  72,717
  81,065
  89,847
  99,054
  108,686
  118,742
  129,222
  140,134
  151,484
  163,283
  175,547
  188,290
  201,533
  215,298
  229,610
  244,494
  259,980
  276,102
  292,890
  310,383
  328,619
  347,639
  367,487
  388,205
  409,845
  432,456
  456,091
  480,805
  506,657
  533,707
Debt-to-equity ratio
  1.390
  1.500
  1.600
  1.690
  1.770
  1.830
  1.890
  1.940
  1.980
  2.020
  2.060
  2.090
  2.120
  2.150
  2.170
  2.190
  2.210
  2.230
  2.250
  2.260
  2.280
  2.290
  2.310
  2.320
  2.330
  2.340
  2.350
  2.360
  2.370
  2.380
Adjusted equity ratio
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  36
  -110
  -278
  -455
  -641
  -836
  -1,040
  -1,253
  -1,475
  -1,705
  -1,940
  -2,189
  -2,448
  -2,718
  -2,997
  -3,288
  -3,590
  -3,905
  -4,232
  -4,572
  -4,927
  -5,297
  -5,682
  -6,084
  -6,503
  -6,941
  -7,398
  -7,876
  -8,375
  -8,898
Depreciation, amort., depletion, $m
  2,248
  2,505
  2,776
  3,060
  3,357
  3,667
  3,991
  4,327
  4,677
  5,041
  5,414
  5,807
  6,215
  6,640
  7,081
  7,540
  8,018
  8,515
  9,033
  9,572
  10,135
  10,721
  11,334
  11,973
  12,640
  13,337
  14,066
  14,828
  15,626
  16,460
Funds from operations, $m
  2,284
  2,395
  2,498
  2,605
  2,716
  2,831
  2,950
  3,074
  3,202
  3,336
  3,474
  3,618
  3,767
  3,922
  4,084
  4,252
  4,428
  4,610
  4,801
  5,000
  5,208
  5,425
  5,652
  5,889
  6,137
  6,396
  6,668
  6,952
  7,250
  7,562
Change in working capital, $m
  -147
  -155
  -163
  -171
  -179
  -187
  -195
  -203
  -211
  -219
  -228
  -237
  -246
  -256
  -266
  -276
  -287
  -299
  -312
  -325
  -339
  -353
  -368
  -385
  -402
  -420
  -439
  -459
  -480
  -502
Cash from operations, $m
  2,431
  2,550
  2,661
  2,776
  2,895
  3,018
  3,145
  3,277
  3,413
  3,555
  3,702
  3,854
  4,013
  4,178
  4,350
  4,529
  4,715
  4,910
  5,113
  5,325
  5,546
  5,778
  6,020
  6,273
  6,539
  6,816
  7,107
  7,411
  7,730
  8,064
Maintenance CAPEX, $m
  -1,999
  -2,243
  -2,500
  -2,771
  -3,055
  -3,352
  -3,662
  -3,985
  -4,322
  -4,672
  -5,036
  -5,414
  -5,807
  -6,215
  -6,640
  -7,081
  -7,540
  -8,018
  -8,515
  -9,033
  -9,572
  -10,135
  -10,721
  -11,334
  -11,973
  -12,640
  -13,337
  -14,066
  -14,828
  -15,626
New CAPEX, $m
  -5,847
  -6,179
  -6,500
  -6,816
  -7,129
  -7,443
  -7,758
  -8,076
  -8,401
  -8,734
  -9,077
  -9,433
  -9,802
  -10,189
  -10,593
  -11,017
  -11,463
  -11,932
  -12,427
  -12,948
  -13,498
  -14,078
  -14,690
  -15,336
  -16,017
  -16,736
  -17,494
  -18,293
  -19,135
  -20,023
Cash from investing activities, $m
  -7,846
  -8,422
  -9,000
  -9,587
  -10,184
  -10,795
  -11,420
  -12,061
  -12,723
  -13,406
  -14,113
  -14,847
  -15,609
  -16,404
  -17,233
  -18,098
  -19,003
  -19,950
  -20,942
  -21,981
  -23,070
  -24,213
  -25,411
  -26,670
  -27,990
  -29,376
  -30,831
  -32,359
  -33,963
  -35,649
Free cash flow, $m
  -5,416
  -5,872
  -6,339
  -6,811
  -7,290
  -7,777
  -8,275
  -8,785
  -9,310
  -9,851
  -10,411
  -10,992
  -11,597
  -12,226
  -12,883
  -13,570
  -14,288
  -15,041
  -15,829
  -16,656
  -17,524
  -18,435
  -19,392
  -20,396
  -21,451
  -22,560
  -23,724
  -24,948
  -26,233
  -27,584
Issuance/(repayment) of debt, $m
  5,696
  5,985
  6,296
  6,602
  6,906
  7,210
  7,515
  7,823
  8,138
  8,460
  8,793
  9,137
  9,495
  9,870
  10,261
  10,672
  11,104
  11,559
  12,038
  12,543
  13,075
  13,637
  14,230
  14,856
  15,516
  16,212
  16,946
  17,720
  18,536
  19,396
Issuance/(repurchase) of shares, $m
  2,256
  2,473
  2,763
  3,061
  3,367
  3,682
  4,006
  4,341
  4,687
  5,045
  5,411
  5,796
  6,196
  6,613
  7,047
  7,500
  7,973
  8,467
  8,983
  9,523
  10,088
  10,679
  11,299
  11,947
  12,627
  13,340
  14,087
  14,870
  15,692
  16,553
Cash from financing (excl. dividends), $m  
  7,952
  8,458
  9,059
  9,663
  10,273
  10,892
  11,521
  12,164
  12,825
  13,505
  14,204
  14,933
  15,691
  16,483
  17,308
  18,172
  19,077
  20,026
  21,021
  22,066
  23,163
  24,316
  25,529
  26,803
  28,143
  29,552
  31,033
  32,590
  34,228
  35,949
Total cash flow (excl. dividends), $m
  2,537
  2,587
  2,721
  2,853
  2,984
  3,115
  3,246
  3,379
  3,515
  3,654
  3,792
  3,941
  4,095
  4,256
  4,425
  4,603
  4,789
  4,985
  5,192
  5,409
  5,639
  5,881
  6,137
  6,407
  6,692
  6,992
  7,308
  7,642
  7,994
  8,365
Retained Cash Flow (-), $m
  -2,292
  -2,473
  -2,763
  -3,061
  -3,367
  -3,682
  -4,006
  -4,341
  -4,687
  -5,045
  -5,411
  -5,796
  -6,196
  -6,613
  -7,047
  -7,500
  -7,973
  -8,467
  -8,983
  -9,523
  -10,088
  -10,679
  -11,299
  -11,947
  -12,627
  -13,340
  -14,087
  -14,870
  -15,692
  -16,553
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  245
  114
  -43
  -209
  -384
  -568
  -760
  -962
  -1,172
  -1,391
  -1,618
  -1,855
  -2,101
  -2,357
  -2,622
  -2,898
  -3,184
  -3,482
  -3,792
  -4,114
  -4,449
  -4,798
  -5,161
  -5,540
  -5,936
  -6,348
  -6,778
  -7,228
  -7,698
  -8,188
Discount rate, %
  8.10
  8.51
  8.93
  9.38
  9.85
  10.34
  10.85
  11.40
  11.97
  12.57
  13.19
  13.85
  14.55
  15.27
  16.04
  16.84
  17.68
  18.57
  19.49
  20.47
  21.49
  22.57
  23.69
  24.88
  26.12
  27.43
  28.80
  30.24
  31.75
  33.34
PV of cash for distribution, $m
  226
  97
  -33
  -146
  -240
  -314
  -370
  -406
  -424
  -426
  -414
  -391
  -359
  -322
  -282
  -240
  -200
  -162
  -129
  -99
  -75
  -55
  -39
  -27
  -18
  -12
  -7
  -4
  -3
  -1
Current shareholders' claim on cash, %
  94.6
  89.6
  84.9
  80.4
  76.1
  72.1
  68.3
  64.8
  61.4
  58.2
  55.2
  52.4
  49.7
  47.2
  44.8
  42.5
  40.4
  38.3
  36.4
  34.5
  32.8
  31.1
  29.6
  28.1
  26.6
  25.3
  24.0
  22.8
  21.6
  20.5

American Electric Power Company, Inc. (AEP) is a public utility holding company that owns, directly or indirectly, all of the outstanding common stock of its public utility subsidiaries and varying percentages of other subsidiaries. The service areas of the Company's public utility subsidiaries cover the states of Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia and West Virginia. The Company's segments include Vertically Integrated Utilities, Transmission and Distribution Utilities, AEP Transmission Holdco, and Generation & Marketing. AEP's vertically integrated utility operations are engaged in the generation, transmission and distribution of electricity for sale to retail and wholesale customers. Transmission and Distribution Utilities segment consists of the transmission and distribution of electricity for sale to retail and wholesale customers. AEP Transmission Holdco develops, constructs and operates transmission facilities.

FINANCIAL RATIOS  of  American Electric Power (AEP)

Valuation Ratios
P/E Ratio 64.4
Price to Sales 2.4
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 8.7
Price to Free Cash Flow -100.6
Growth Rates
Sales Growth Rate -0.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 6.7%
Cap. Spend. - 3 Yr. Gr. Rate 5.4%
Financial Strength
Quick Ratio 0
Current Ratio 0.2
LT Debt to Equity 99.9%
Total Debt to Equity 126.3%
Interest Coverage 2
Management Effectiveness
Return On Assets 2.5%
Ret/ On Assets - 3 Yr. Avg. 3.5%
Return On Total Capital 1.6%
Ret/ On T. Cap. - 3 Yr. Avg. 3.9%
Return On Equity 3.5%
Return On Equity - 3 Yr. Avg. 8.4%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 20.1%
EBITDA Margin - 3 Yr. Avg. 28.3%
Operating Margin 7.4%
Oper. Margin - 3 Yr. Avg. 15.6%
Pre-Tax Margin 2.9%
Pre-Tax Margin - 3 Yr. Avg. 11.2%
Net Profit Margin 3.7%
Net Profit Margin - 3 Yr. Avg. 8.7%
Effective Tax Rate -15.3%
Eff/ Tax Rate - 3 Yr. Avg. 19.1%
Payout Ratio 183.5%

AEP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AEP stock intrinsic value calculation we used $15424.9 million for the last fiscal year's total revenue generated by American Electric Power. The default revenue input number comes from 0001 income statement of American Electric Power. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our AEP stock valuation model: a) initial revenue growth rate of 12.2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 8.1%, whose default value for AEP is calculated based on our internal credit rating of American Electric Power, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of American Electric Power.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of AEP stock the variable cost ratio is equal to 92.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for AEP stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for American Electric Power.

Corporate tax rate of 27% is the nominal tax rate for American Electric Power. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the AEP stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for AEP are equal to 311%.

Life of production assets of 24 years is the average useful life of capital assets used in American Electric Power operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for AEP is equal to -7.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $18287 million for American Electric Power - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 492.934 million for American Electric Power is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of American Electric Power at the current share price and the inputted number of shares is $39.4 billion.

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COMPANY NEWS

▶ 5 Safe Stocks to Survive a Turbulent Market   [Dec-10-18 08:49AM  Zacks]
▶ 5 Utility Stocks to Buy for an Extra Durable Portfolio   [Dec-07-18 02:36PM  InvestorPlace]
▶ Outlook for energy   [Dec-06-18 06:09PM  Yahoo Finance Video]
▶ AEP Announces Executive Leadership Changes   [Dec-05-18 09:00AM  PR Newswire]
▶ ChargePoint plugs in $240M in what could be last funding before IPO   [Nov-28-18 04:00AM  American City Business Journals]
▶ Covalis Capitals Returns, AUM and Holdings   [Nov-26-18 02:17PM  Insider Monkey]
▶ Jim Cramer: Too Few Leaders, Too Many Clinkers   [Nov-12-18 07:01PM  TheStreet.com]
▶ American Electric Power Is Poised to Move Still Higher   [Nov-01-18 11:21AM  TheStreet.com]
▶ AEP names new leaders in C-suite reshuffling   [Oct-29-18 12:50PM  American City Business Journals]
▶ AEP sees windfall from hot summer   [01:38PM  American City Business Journals]
▶ AEP: 3Q Earnings Snapshot   [07:10AM  Associated Press]
▶ AEP Schedules Live Webcast Of Quarterly Earnings Call   [Oct-17-18 10:51AM  PR Newswire]
▶ AEP proposes state's largest solar farm   [Sep-28-18 01:10PM  American City Business Journals]
▶ FuelCell Energy Sells Project to AEP   [08:00AM  GlobeNewswire]
▶ American Electric Power Seeks Bids For Coal   [Aug-02-18 12:20PM  PR Newswire]

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