American Electric Power Company Inc (AEP) is a public utility holding company, engages in the generation, transmission, and distribution of electricity for sale to retail and wholesale customers. The company generates electricity using coal and lignite, natural gas, nuclear, and hydroelectric and other energy sources. It also supplies and markets electric power at wholesale to other electric utility companies, rural electric cooperatives, municipalities, and other market participants. The company serves approximately 5.3 million customers in 11 states.
Electric utilities in general have seen slower sales industry-wide amid a combination of energy conservation, energy efficiency and shift towards independent power generation/natural gas usage. Coupled with the new regulations from the US government to reduce carbon emissions, electric utilities have started focusing a shift away from dirty fuels such as coal. AEP has the added threat of operating in the part of the US economy which has a big focus on the oil production. The company expects earnings to grow at a pace of 4-6% in 2016 but investors shouldn’t be surprised if it comes in at the lower end of that range. The company appears overvalued based on the valuation metrics used.