American Electric Power Company, Inc.AEPNASDAQ

Overview Intelligence Charts News Fundamentals Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $289.63 per share(market-calibrated)

+117.3%

Upside to Fair Value

Current

$133.29

Pure Model

$314.15

Fair Value

$289.63

Bull Case

$405.59

Bear Case

$240.86

Market Reality Check

Model Terminal Growth

2.00%

Market-Implied Growth

0.50%

Calibrated Growth

1.48%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $314.15.

What's Driving This Ratingfor AEP

↓

CapEx normalizing toward maintenance

Historical CapEx is 18.65% of revenue (heavy investment phase). Model fades this to 5.00% by Year 10, freeing up ~$5.0B in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 22.14% — below the sector mature average of 24.33%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $8.2B (22.14% margin).

→

Moderate revenue growth

Analyst consensus projects 6.19% revenue growth, fading to 2.00% by Year 10. Revenue reaches $36.9B (vs $21.8B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $374.80/share (28.7x terminal FCF) while exit multiple gives $253.51/share (19.3x terminal FCF). The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 150bps below the model's 2.00%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 83.05% indicates efficient cash generation. FCF reaches $11.4B by Year 10 (30.89% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.62

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)7.30%

Cost of Debt

Pre-tax Cost of Debt3.30%

Tax Rate5.00%

After-tax Cost of Debt3.13%

Equity Weight (E/V)57.92%

Debt Weight (D/V)42.08%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (57.92% × 7.30%) + (42.08% × 3.13%)

= 5.55%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$23.1B	$26.0B	$30.7B	$33.9B	$36.9B
EBIT	$5.1B	$5.8B	$6.8B	$7.5B	$8.2B
Tax	$256M	$288M	$340M	$375M	$408M
NOPAT	$4.9B	$5.5B	$6.5B	$7.1B	$7.8B
+ Depreciation	$3.5B	$3.9B	$4.6B	$5.1B	$5.6B
- Capex	$4.3B	$4.1B	$3.9B	$3.2B	$1.8B
- Δ NWC	$135M	$153M	$183M	$149M	$72M
Free Cash Flow	$3.9B	$5.2B	$7.0B	$8.8B	$11.4B
Discount Factor	0.947	0.850	0.763	0.685	0.583
Present Value	$3.7B	$4.4B	$5.4B	$6.1B	$6.6B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$11.4B

Terminal Growth Rate2.00%

WACC5.55%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$327.4B

PV of Terminal Value$190.8B

Exit Multiple Method

Year 10 EBITDA$13.7B

Exit Multiple (EV/EBITDA)16.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$219.4B

PV of Terminal Value$127.9B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$53.7B

PV of Terminal Value$190.8B

Enterprise Value$244.5B

(-) Net Debt$50.0B

Equity Value$194.5B

Shares Outstanding519M

Price per Share$374.80

Exit Multiple Method

PV of Projected FCFs$53.7B

PV of Terminal Value$127.9B

Enterprise Value$181.5B

(-) Net Debt$50.0B

Equity Value$131.5B

Shares Outstanding519M

Price per Share$253.51

Pure Model Fair Value

$314.15

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.00%	1.50%	2.00%	2.50%	3.00%
3.55%	$476.03	$552.85	$537.78	$511.88	$487.18
4.55%	$348.99	$382.99	$430.33	$500.78	$487.18
5.55%	$272.32	$290.66	$314.15	$345.36	$388.81
6.55%	$219.48	$230.55	$244.05	$260.89	$282.48
7.55%	$180.03	$187.23	$195.72	$205.90	$218.32

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$240.86

80.7% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.78

Base Case

$314.15

135.7% vs current

• Analyst consensus
• Terminal growth: 2.0%
• Beta: 0.62

Bull Case

$405.59

204.3% vs current

• +25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 0.53

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Utilities Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth6.19%

Year 3 Revenue Growth6.23%

Year 5 Revenue Growth6.36%

Year 7 Revenue Growth4.61%

Year 10 Revenue Growth2.00%

Terminal Growth Rate2.00%

Margin & Efficiency

Current EBIT Margin22.14%

Terminal EBIT Margin24.33%

Tax Rate5.00%

Historical Capex / Rev18.65%

Terminal Capex / Rev5.00%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 16x EV/EBITDA (Utilities sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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