Penn Wealth Publishing

2021.03.21 Penn Wealth Report Vol 9 Issue 02

Issue link: https://hub.pennwealth.com/i/1354180

Contents of this Issue

Navigation

Page 13 of 35

14 penn wealth Report voluMe 9 issue 02 21 Mar 2021 Penn Wealth Report Copyright 2021. All Rights Reserved. investMent intelligence American Electric Power Electric Utilities e content of this report reflects the personal views, opinions, and research of Penn Wealth Publishing. While measures are taken to help assure the accuracy of data, no guaran- tees can be made and the firm is not liable for any losses incurred by subscribers. is is not a solicitation to buy. Always consult your investment professional before investing any money. The extreme cold weather in Texas last month and the subsequent widespread power outages in the region should have served as a wakeup call to anyone taking our national energy grid for granted. And let's face it, we have become so accustomed to energy-on-demand that our lives are thrown into disarray when the power we need or desire is not available at the flick of a switch. e cold, hard truth is that our energy grid, the massive interconnected web which delivers power from producers to consum- ers, is outdated and vulnerable to attack. Whether the culprit is natural or of more nefarious origins, the results are the same: unacceptable disruption. We paint this rather dire backdrop because it will serve as the catalyst for a mas- sive overhaul to our grid and a major shift into renewable energy. And it makes perfect sense that a utility company controlling over 40,000 miles of transmission capabilities will be a major part of the movement. e big transition from dirty to clean energy. One reason $40 billion utility American Electric Power AEP $80 remains off the radar screen for most investors is the erroneous assumption that it is in an antiquated sector. Granted, a plurality of the company's energy capacity remains coal-generated, but man- agement has an aggressive, $36 billion plan to shift to renewables over the coming five years. e sector is morphing, and investors should pay attention. Management is targeting a 7% annual rate base growth rate over the next five years, meaning solid growth in revenues. Speaking of rate base expansion, which directly cal- culates into a regulated utility's top line potential, AEP has been accumulating wind and solar assets, further adding to the com- pany's footprint. We counted eleven major wind and solar projects AEP is currently developing across the country. Back in 2019, the firm bought the wind assets of Sempra Renewables for $1.05 billion, and last year it completed the acquisition of Invenergy's interests in the Desert Sky (170MW) and Trent Mesa (156MW) wind farms in Texas. From an organic growth standpoint, AEP Renewables is constructing a 128MW wind farm in Kingman County, Kansas to be known as Flat Ridge 3. Once completed, AEP Renewables' clean energy portfolio will generate an impressive 1,495MW of power. In the Nasdaq? Maybe it is a growth stock. It almost seems blasphemous for a 115-year-old utility to be listed on the tech- laden Nasdaq exchange, but there it sits. Furthermore, as of late last year it is a mem- ber of the prestigious Nasdaq 100, which includes the largest non-financial companies on the exchange. Its fat 3.5% dividend yield also makes it somewhat of an outlier. No, we are not calling AEP an Apple or Zoom, but we actually like it because it isn't a typical stock. If we are correct, it is an amalgamation of everything we want from a holding: growth potential, an income stream, and a stalwart in downturns. We've outlined our case for the first two components, but what about the third? AEP has a crazy-low beta of 0.2469—about one-fifth that of conservative Apple. It may sound cliche, but no Americans turn off their utilities during a recession, and elec- tricity doesn't get any cheaper for consumers when the markets are cratering. Let others write off AEP as an old fashioned blue chip, but it looks like a screaming value to us right now. We added American Electric Power to the Penn Global Leaders Club at $80 per share. We considered it for the Strategic Income Portfolio, but ended up putting it in the GLC because of our belief in its long-term story. While our first target price on the shares is $90, we could see them hitting tri- ple-digits in the not-too-distant future. The utilities sector is about to morph into something new and exciting, and one particular utility appears especially well-poised to take advantage of the changes. ...everything we want from a holding: growth potential, an income stream, and a stalwart in downturns. AEP @ $80

Articles in this issue

Archives of this issue

view archives of Penn Wealth Publishing - 2021.03.21 Penn Wealth Report Vol 9 Issue 02