American Electric Banks on Investments and Renewables for Growth

American Electric Power Company, Inc. AEP continues to invest in infrastructure enhancements to improve operational reliability and meet rising customer demand. The company is also steadily expanding its renewable energy generation portfolio.

However, this Zacks Rank #3 (Hold) company remains exposed to operational risks due to its heavy dependence on a limited number of Retail Electric Providers (REPs).

Key Factors Supporting AEP’s Growth

AEP’s geographically diversified footprint allows it to generate revenues across multiple states, giving it a competitive edge over utilities operating in a single region. The company also runs the largest electricity transmission network in the United States, covering nearly 40,000 circuit miles of lines. This includes about 2,100 circuit miles of 765 kV lines that serve as a critical backbone of the eastern U.S. electric interconnection grid.

American Electric continues to invest heavily in expanding its renewable generation portfolio. In the third quarter of 2025, the company deployed $1.7 billion to acquire four power plants, including the Pixley Solar Energy Facility and Flat Ridge IV and V. As of Sept. 30, 2025, AEP had secured regulatory approvals from several state commissions to acquire nearly 1,826 megawatts (MW) of owned renewable generation capacity through $4.5 billion of investments. It also received approval for 1,059 MW of renewable power purchase agreements. AEP plans to invest $8 billion in regulated renewable expansion between 2026 and 2030.

The company is also advancing its $72 billion capital investment plan for 2026-2030, focused on generation, transmission and distribution infrastructure, including renewables. This capital strategy supports a 10% rate base CAGR through 2030, with nearly 90% of planned investments expected to be recovered through reduced-lag mechanisms.

Potential Headwinds for AEP Stock

AEP Texas derives a significant portion of its revenues from a limited number of REPs, with its two largest REPs contributing 40% of operating revenues in 2024. Any payment delays or defaults by these providers stemming from financial or economic challenges could adversely affect AEP Texas’s cash flow, financial position and operating results. Regulatory constraints also restrict AEP Texas’ ability to demand credit protections from REPs, leaving the utility exposed to nonpayment risk until customers are reassigned to another provider.

As of Sept. 30, 2025, American Electric Power had a total generating capacity of 24,500 MW, of which nearly 10,700 MW was coal-based. The company is evaluating the potential effects of four new Environmental Protection Agency regulations on its generation fleet. These rules could materially influence operating performance as AEP revises compliance cost estimates while working to maintain reliable and cost-effective electricity service.

AEP Stock Price Movement

In the past month, AEP shares have risen 3.7% compared with the industry’s growth of 4.1%.

Stocks to Consider

Some better-ranked stocks from the same industry are Pinnacle West Capital PNW, NiSource Inc. NI and Ameren Corporation AEE, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PNW’s long-term (three to five years) earnings growth rate is 3.56%. The Zacks Consensus Estimate for its 2026 revenues stands at $5.55 billion, which calls for a year-over-year rise of 4.6%.

NI’s long-term earnings growth rate is 5.97%. The Zacks Consensus Estimate for its 2026 revenues is pegged at $6.46 billion, which implies a year-over-year improvement of 7.1%.

AEE’s long-term earnings growth rate is 8.52%. The Zacks Consensus Estimate for its 2026 revenues stands at $9.79 billion, which suggests year-over-year growth of 7.2%.

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This article originally published on Zacks Investment Research (zacks.com).

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