Intrinsic value of American Electric Power - AEP

Previous Close

$71.02

  Intrinsic Value

$9.27

stock screener

  Rating & Target

str. sell

-87%

Previous close

$71.02

 
Intrinsic value

$9.27

 
Up/down potential

-87%

 
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 2017), $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 34.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  15,734
  16,095
  16,509
  16,973
  17,488
  18,053
  18,667
  19,333
  20,050
  20,819
  21,643
  22,521
  23,456
  24,450
  25,505
  26,623
  27,806
  29,057
  30,379
  31,775
  33,248
  34,801
  36,438
  38,163
  39,980
  41,893
  43,906
  46,025
  48,254
  50,598
Variable operating expenses, $m
  14,569
  14,904
  15,287
  15,717
  16,193
  16,716
  17,285
  17,901
  18,565
  19,277
  20,034
  20,847
  21,712
  22,632
  23,609
  24,643
  25,738
  26,897
  28,120
  29,412
  30,776
  32,214
  33,729
  35,326
  37,008
  38,778
  40,642
  42,603
  44,666
  46,837
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
  14,569
  14,904
  15,287
  15,717
  16,193
  16,716
  17,285
  17,901
  18,565
  19,277
  20,034
  20,847
  21,712
  22,632
  23,609
  24,643
  25,738
  26,897
  28,120
  29,412
  30,776
  32,214
  33,729
  35,326
  37,008
  38,778
  40,642
  42,603
  44,666
  46,837
Operating income, $m
  1,164
  1,191
  1,222
  1,257
  1,295
  1,337
  1,383
  1,432
  1,485
  1,542
  1,609
  1,674
  1,744
  1,818
  1,896
  1,979
  2,067
  2,160
  2,258
  2,362
  2,472
  2,587
  2,709
  2,837
  2,972
  3,114
  3,264
  3,422
  3,587
  3,762
EBITDA, $m
  6,066
  6,205
  6,365
  6,544
  6,742
  6,960
  7,197
  7,454
  7,730
  8,027
  8,344
  8,683
  9,043
  9,427
  9,833
  10,264
  10,720
  11,203
  11,712
  12,251
  12,818
  13,417
  14,048
  14,713
  15,414
  16,151
  16,928
  17,745
  18,604
  19,508
Interest expense (income), $m
  849
  1,232
  1,284
  1,342
  1,410
  1,485
  1,569
  1,661
  1,761
  1,869
  1,986
  2,111
  2,245
  2,388
  2,540
  2,702
  2,873
  3,055
  3,247
  3,451
  3,666
  3,893
  4,133
  4,385
  4,652
  4,932
  5,228
  5,539
  5,867
  6,211
  6,574
Earnings before tax, $m
  -67
  -92
  -120
  -153
  -190
  -232
  -278
  -329
  -384
  -443
  -502
  -571
  -644
  -722
  -805
  -894
  -988
  -1,087
  -1,192
  -1,304
  -1,421
  -1,545
  -1,676
  -1,815
  -1,960
  -2,113
  -2,275
  -2,445
  -2,624
  -2,812
Tax expense, $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
Net income, $m
  -67
  -92
  -120
  -153
  -190
  -232
  -278
  -329
  -384
  -443
  -502
  -571
  -644
  -722
  -805
  -894
  -988
  -1,087
  -1,192
  -1,304
  -1,421
  -1,545
  -1,676
  -1,815
  -1,960
  -2,113
  -2,275
  -2,445
  -2,624
  -2,812

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
  66,107
  67,628
  69,366
  71,317
  73,479
  75,851
  78,435
  81,231
  84,243
  87,476
  90,935
  94,626
  98,555
  102,732
  107,163
  111,859
  116,831
  122,088
  127,642
  133,507
  139,695
  146,222
  153,101
  160,349
  167,982
  176,020
  184,480
  193,382
  202,747
  212,598
Adjusted assets (=assets-cash), $m
  66,107
  67,628
  69,366
  71,317
  73,479
  75,851
  78,435
  81,231
  84,243
  87,476
  90,935
  94,626
  98,555
  102,732
  107,163
  111,859
  116,831
  122,088
  127,642
  133,507
  139,695
  146,222
  153,101
  160,349
  167,982
  176,020
  184,480
  193,382
  202,747
  212,598
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
  48,963
  50,089
  51,376
  52,821
  54,423
  56,180
  58,093
  60,164
  62,395
  64,790
  67,352
  70,085
  72,996
  76,089
  79,371
  82,849
  86,531
  90,425
  94,539
  98,883
  103,466
  108,300
  113,395
  118,763
  124,417
  130,370
  136,636
  143,229
  150,166
  157,462
Working capital, $m
  -1,133
  -1,159
  -1,189
  -1,222
  -1,259
  -1,300
  -1,344
  -1,392
  -1,444
  -1,499
  -1,558
  -1,622
  -1,689
  -1,760
  -1,836
  -1,917
  -2,002
  -2,092
  -2,187
  -2,288
  -2,394
  -2,506
  -2,624
  -2,748
  -2,879
  -3,016
  -3,161
  -3,314
  -3,474
  -3,643
Total debt, $m
  23,769
  24,859
  26,105
  27,504
  29,054
  30,755
  32,607
  34,612
  36,772
  39,090
  41,570
  44,217
  47,034
  50,028
  53,206
  56,573
  60,137
  63,907
  67,889
  72,094
  76,531
  81,211
  86,143
  91,340
  96,813
  102,576
  108,642
  115,024
  121,739
  128,803
Total liabilities, $m
  47,399
  48,489
  49,735
  51,134
  52,684
  54,385
  56,238
  58,243
  60,402
  62,721
  65,201
  67,847
  70,664
  73,659
  76,836
  80,203
  83,767
  87,537
  91,519
  95,725
  100,162
  104,841
  109,773
  114,970
  120,443
  126,206
  132,272
  138,655
  145,370
  152,433
Total equity, $m
  18,708
  19,139
  19,630
  20,183
  20,795
  21,466
  22,197
  22,988
  23,841
  24,756
  25,735
  26,779
  27,891
  29,073
  30,327
  31,656
  33,063
  34,551
  36,123
  37,782
  39,534
  41,381
  43,327
  45,379
  47,539
  49,814
  52,208
  54,727
  57,377
  60,165
Total liabilities and equity, $m
  66,107
  67,628
  69,365
  71,317
  73,479
  75,851
  78,435
  81,231
  84,243
  87,477
  90,936
  94,626
  98,555
  102,732
  107,163
  111,859
  116,830
  122,088
  127,642
  133,507
  139,696
  146,222
  153,100
  160,349
  167,982
  176,020
  184,480
  193,382
  202,747
  212,598
Debt-to-equity ratio
  1.270
  1.300
  1.330
  1.360
  1.400
  1.430
  1.470
  1.510
  1.540
  1.580
  1.620
  1.650
  1.690
  1.720
  1.750
  1.790
  1.820
  1.850
  1.880
  1.910
  1.940
  1.960
  1.990
  2.010
  2.040
  2.060
  2.080
  2.100
  2.120
  2.140
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
  -67
  -92
  -120
  -153
  -190
  -232
  -278
  -329
  -384
  -443
  -502
  -571
  -644
  -722
  -805
  -894
  -988
  -1,087
  -1,192
  -1,304
  -1,421
  -1,545
  -1,676
  -1,815
  -1,960
  -2,113
  -2,275
  -2,445
  -2,624
  -2,812
Depreciation, amort., depletion, $m
  4,902
  5,014
  5,143
  5,287
  5,448
  5,623
  5,815
  6,022
  6,245
  6,484
  6,735
  7,009
  7,300
  7,609
  7,937
  8,285
  8,653
  9,042
  9,454
  9,888
  10,347
  10,830
  11,339
  11,876
  12,442
  13,037
  13,664
  14,323
  15,017
  15,746
Funds from operations, $m
  4,834
  4,922
  5,023
  5,134
  5,257
  5,391
  5,536
  5,693
  5,861
  6,041
  6,233
  6,438
  6,656
  6,887
  7,132
  7,391
  7,665
  7,955
  8,261
  8,584
  8,925
  9,285
  9,663
  10,062
  10,482
  10,924
  11,389
  11,878
  12,393
  12,934
Change in working capital, $m
  -22
  -26
  -30
  -33
  -37
  -41
  -44
  -48
  -52
  -55
  -59
  -63
  -67
  -72
  -76
  -80
  -85
  -90
  -95
  -100
  -106
  -112
  -118
  -124
  -131
  -138
  -145
  -153
  -160
  -169
Cash from operations, $m
  4,856
  4,948
  5,052
  5,168
  5,294
  5,432
  5,581
  5,741
  5,913
  6,096
  6,293
  6,501
  6,723
  6,958
  7,208
  7,472
  7,751
  8,045
  8,357
  8,685
  9,031
  9,396
  9,781
  10,186
  10,612
  11,061
  11,534
  12,030
  12,553
  13,103
Maintenance CAPEX, $m
  -4,800
  -4,896
  -5,009
  -5,138
  -5,282
  -5,442
  -5,618
  -5,809
  -6,016
  -6,240
  -6,479
  -6,735
  -7,009
  -7,300
  -7,609
  -7,937
  -8,285
  -8,653
  -9,042
  -9,454
  -9,888
  -10,347
  -10,830
  -11,339
  -11,876
  -12,442
  -13,037
  -13,664
  -14,323
  -15,017
New CAPEX, $m
  -960
  -1,126
  -1,287
  -1,445
  -1,601
  -1,757
  -1,913
  -2,071
  -2,231
  -2,395
  -2,562
  -2,734
  -2,910
  -3,093
  -3,282
  -3,478
  -3,682
  -3,894
  -4,114
  -4,344
  -4,583
  -4,834
  -5,095
  -5,368
  -5,654
  -5,953
  -6,266
  -6,593
  -6,937
  -7,296
Cash from investing activities, $m
  -5,760
  -6,022
  -6,296
  -6,583
  -6,883
  -7,199
  -7,531
  -7,880
  -8,247
  -8,635
  -9,041
  -9,469
  -9,919
  -10,393
  -10,891
  -11,415
  -11,967
  -12,547
  -13,156
  -13,798
  -14,471
  -15,181
  -15,925
  -16,707
  -17,530
  -18,395
  -19,303
  -20,257
  -21,260
  -22,313
Free cash flow, $m
  -904
  -1,074
  -1,244
  -1,415
  -1,589
  -1,768
  -1,951
  -2,140
  -2,335
  -2,538
  -2,748
  -2,967
  -3,196
  -3,434
  -3,683
  -3,944
  -4,216
  -4,501
  -4,800
  -5,113
  -5,440
  -5,784
  -6,144
  -6,522
  -6,918
  -7,333
  -7,769
  -8,227
  -8,706
  -9,210
Issuance/(repayment) of debt, $m
  957
  1,090
  1,246
  1,399
  1,550
  1,701
  1,852
  2,005
  2,160
  2,318
  2,480
  2,646
  2,817
  2,994
  3,177
  3,367
  3,564
  3,769
  3,983
  4,205
  4,437
  4,679
  4,932
  5,197
  5,473
  5,763
  6,066
  6,383
  6,715
  7,063
Issuance/(repurchase) of shares, $m
  489
  523
  612
  705
  802
  903
  1,009
  1,120
  1,236
  1,358
  1,481
  1,615
  1,756
  1,904
  2,060
  2,223
  2,395
  2,575
  2,764
  2,964
  3,173
  3,392
  3,623
  3,866
  4,120
  4,388
  4,669
  4,964
  5,274
  5,600
Cash from financing (excl. dividends), $m  
  1,446
  1,613
  1,858
  2,104
  2,352
  2,604
  2,861
  3,125
  3,396
  3,676
  3,961
  4,261
  4,573
  4,898
  5,237
  5,590
  5,959
  6,344
  6,747
  7,169
  7,610
  8,071
  8,555
  9,063
  9,593
  10,151
  10,735
  11,347
  11,989
  12,663
Total cash flow (excl. dividends), $m
  542
  538
  615
  689
  763
  837
  911
  986
  1,061
  1,139
  1,212
  1,294
  1,377
  1,464
  1,553
  1,646
  1,743
  1,843
  1,947
  2,056
  2,169
  2,288
  2,411
  2,541
  2,676
  2,817
  2,966
  3,121
  3,283
  3,453
Retained Cash Flow (-), $m
  -489
  -523
  -612
  -705
  -802
  -903
  -1,009
  -1,120
  -1,236
  -1,358
  -1,481
  -1,615
  -1,756
  -1,904
  -2,060
  -2,223
  -2,395
  -2,575
  -2,764
  -2,964
  -3,173
  -3,392
  -3,623
  -3,866
  -4,120
  -4,388
  -4,669
  -4,964
  -5,274
  -5,600
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
  53
  16
  2
  -16
  -39
  -67
  -98
  -135
  -175
  -220
  -268
  -321
  -378
  -440
  -506
  -577
  -652
  -732
  -817
  -908
  -1,003
  -1,105
  -1,212
  -1,325
  -1,444
  -1,571
  -1,704
  -1,844
  -1,991
  -2,147
Discount rate, %
  8.00
  8.40
  8.82
  9.26
  9.72
  10.21
  10.72
  11.26
  11.82
  12.41
  13.03
  13.68
  14.37
  15.09
  15.84
  16.63
  17.46
  18.34
  19.25
  20.22
  21.23
  22.29
  23.40
  24.57
  25.80
  27.09
  28.45
  29.87
  31.36
  32.93
PV of cash for distribution, $m
  49
  13
  2
  -11
  -25
  -37
  -48
  -57
  -64
  -68
  -70
  -69
  -66
  -62
  -56
  -49
  -42
  -35
  -29
  -23
  -18
  -13
  -10
  -7
  -5
  -3
  -2
  -1
  -1
  0
Current shareholders' claim on cash, %
  98.6
  97.2
  95.6
  93.8
  91.9
  89.9
  87.7
  85.5
  83.1
  80.7
  78.3
  75.8
  73.3
  70.7
  68.2
  65.7
  63.2
  60.7
  58.3
  55.9
  53.5
  51.2
  49.0
  46.8
  44.7
  42.6
  40.6
  38.7
  36.8
  35.0

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 57.2
Price to Sales 2.1
Price to Book 2
Price to Tangible Book
Price to Cash Flow 7.7
Price to Free Cash Flow -89.3
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 $15425 million for the last fiscal year's total revenue generated by American Electric Power. The default revenue input number comes from 2017 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 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%, 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 311.2%.

Life of production assets of 10 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 -7.2%. 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 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 $34.9 billion.

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COMPANY NEWS

▶ American Electric Power Seeks Bids For Coal   [Aug-02-18 12:20PM  PR Newswire]
▶ AEP Names Kramer Chief Digital Officer   [Jul-30-18 11:00AM  PR Newswire]
▶ [$$] AEP Cancels Plans for $4.5 billion U.S. Wind Farm   [Jul-29-18 07:43PM  The Wall Street Journal]
▶ [$$] AEP Cancels Plans for $4.5 billion U.S. Wind Farm   [Jul-27-18 05:30PM  The Wall Street Journal]
▶ AEP Cancels Wind Catcher Project   [02:00PM  PR Newswire]
▶ AEP: 2Q Earnings Snapshot   [07:09AM  Associated Press]
▶ AEP Schedules Live Webcast Of Quarterly Earnings Call   [Jul-17-18 10:45AM  PR Newswire]
▶ Cramer's Exec Cut: Business is bigger in Texas   [Jul-13-18 06:00PM  CNBC Videos]
▶ AEP to build $130M data center in Groveport   [11:44AM  American City Business Journals]
▶ 4 Stocks That Can Shine In A Risky Market   [Jun-20-18 01:00PM  Investopedia]
▶ American Electric Power Seeks Bids For Coal   [Jun-18-18 01:00PM  PR Newswire]
▶ Kentucky Power Company Offers Coal For Sale   [Jun-15-18 05:00PM  PR Newswire]
▶ You have to understand bonds   [Jun-07-18 07:24PM  CNBC Videos]
▶ When executives unexpectedly resign   [07:20PM  CNBC Videos]
▶ AEP Names Smoak President And COO Of SWEPCO   [May-14-18 12:30PM  PR Newswire]
▶ AEP Generation Resources Seeks Bids For Coal   [May-03-18 04:30PM  PR Newswire]
▶ After tax cuts, the selling has gone too far   [May-01-18 07:18PM  CNBC Videos]
▶ Why It's Time Again to Buy American Electric Power Stock   [Apr-27-18 10:44AM  TheStreet.com]
▶ AEP: 1Q Earnings Snapshot   [08:08AM  Associated Press]
▶ AEP Reports 2018 First-Quarter Earnings   [06:57AM  PR Newswire]
▶ AEP to put nearly $18B into upgrading its power grid   [02:36PM  American City Business Journals]
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