DCF Studio

    AEP · NMS · Utilities

    American Electric Power Company, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 22.24

    Market price

    USD 120.00

    Implied upside

    -81.5%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 38.2% of revenue against depreciation of 16.7%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD 22.24-81.5%
    Exit multiple
    USD 89.07-25.8%
    Market price
    USD 120.00

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0m252m504mFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 22.7bnUSD 23.5bnUSD 24.4bnUSD 25.3bnUSD 26.2bn+3.7%
    EBITUSD 4.9bnUSD 5.1bnUSD 5.2bnUSD 5.4bnUSD 5.6bn+3.7%
    NOPATUSD 4.8bnUSD 4.9bnUSD 5.1bnUSD 5.3bnUSD 5.5bn+3.7%
    Add depreciation & amortisationUSD 3.8bnUSD 3.9bnUSD 4.1bnUSD 4.2bnUSD 4.4bn+3.7%
    Less capital expenditureUSD -8.7bnUSD -9.0bnUSD -9.3bnUSD -9.6bnUSD -10.0bn+3.7%
    Less increase in working capitalUSD 552.6mUSD 572.8mUSD 593.8mUSD 615.5mUSD 638.1m-3.7%
    Free cashflow to firmUSD 436.2mUSD 452.1mUSD 468.7mUSD 485.8mUSD 503.6m+3.7%
    Discount factor0.96660.90320.84390.78850.7367-
    Present valueUSD 421.6mUSD 408.3mUSD 395.5mUSD 383.1mUSD 371.0m-3.1%
    Present Value Of The ForecastUSD 2.0bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.665Reported 0.500, pulled toward 1.0 (Blume)
    Cost of equity8.66%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 65.3bn56.9% of capital
    Total debtUSD 49.5bn43.1% of capital, book value as a proxy
    Tax rate2.5%Effective, capped at statutory
    WACC7.03%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 22.24

    97% of EV

    Forecast FCFF, final year
    USD 503.6m
    Capex at depreciation, working capital in reinvestment
    USD 5.5bn
    Less reinvestment at g/ROIC (35.6% of NOPAT)
    USD -2.0bn
    Capitalised
    USD 3.5bn
    ROIC (WACC floor)
    7.0%
    Terminal value, undiscounted
    USD 80.2bn
    Terminal value, discounted
    USD 59.1bn
    Enterprise value
    USD 61.0bn
    Less net debt
    USD 49.1bn
    Equity value
    USD 12.0bn

    Exit at 12.9x EBITDA

    Value per shareUSD 89.07

    98% of EV

    Terminal value, undiscounted
    USD 128.9bn
    Terminal value, discounted
    USD 95.0bn
    Enterprise value
    USD 97.0bn
    Less net debt
    USD 49.1bn
    Equity value
    USD 47.9bn

    Spread between methods: 120%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    5.03%88.0694.45103.10115.67136.01
    6.02%44.7945.4446.0946.7447.40
    7.03%21.1721.7022.2422.7723.31
    8.03%3.624.074.524.975.42
    9.03%-9.88-9.50-9.11-8.73-8.35

    Outlined: this model. Green text: above today's price of 120.00. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year3.7%15.4%+11.8pp
    EBIT margin21.5%35.5%+14.0pp
    Discount rate7.0%4.8%-2.2pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.