On Friday, American Electric Power (NASDAQ:AEP) saw its stock rating downgraded from Neutral to Sell by Ladenburg Thalmann, with a new price target set at $73.00, down from the previous $75.50.
The downgrade is attributed to the company's valuation, which has outperformed the Philadelphia Utility index by 7.8% since September 2023, despite a lack of improvement in its regulatory outlook.
The firm noted recent negative regulatory decisions impacting American Electric Power, including a Federal Energy Regulatory Commission (FERC) ordered refund due to the company's accounting practices for Accumulated Deferred Income Taxes (ADIT) and disallowed fuel costs by the West Virginia Commission. Deliberations by the Kentucky Commission on similar disallowances are also underway.
Further regulatory challenges for the utility company include a decision by the Texas Commission on the Turk coal plant, which could result in customer refunds amounting to as much as $200 million. These setbacks have led Ladenburg Thalmann to maintain that American Electric Power should be valued at a 5% price-to-earnings (P/E) discount relative to the utility group.
The downgrade reflects a cautious stance on the stock's future performance in light of the regulatory headwinds it faces. The firm's analysis suggests that the recent outperformance of American Electric Power's stock may not be sustainable given the significant regulatory push-back it is currently experiencing.
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