Morningstar | American Electric Power: Solid 2018 Results, Strong Growth Opportunities Support Long-Term Outlook
We are reaffirming our $71 per share fair value estimate, narrow moat and stable moat trend ratings after American Electric Power reported full-year operating earnings of $3.95 per share, up from $3.68 per share in the same year-ago period. Management reaffirmed its 2019 full-year earnings guidance range of $4.00 to $4.20.Management had a successful regulatory year, attaining constructive regulatory rulings in Indiana, Michigan, Kentucky, and Texas. Oklahoma remains one of the toughest regulatory environments for utilities to operate in, and we think the conclusion of the upcoming rate decision will be an important factor in determining management's strategic direction for the unit. Twelve-month average returns on equity at the unit were just 6.9% through December. We think this is unsustainable. The firm will also conclude its West Virginia rate case and initiate rulings in Arkansas and Texas. We view these jurisdictions as constructive, without the regulatory headwinds of Oklahoma.
This year will be instrumental in the execution of the firm's aggressive renewable plan. It looks to install 3.9 GW of solar and 4.4 GW of wind across its utility subsidiaries from 2021 to 2030. While management was unsuccessful in the 2,000 MW Wind Catcher Connection Project, we view these smaller state-specific requests as much more attainable. These projects are instrumental in its ability to meet the higher end of its 5% to 7% earnings target, a goal we think this seasoned executive team will meet. We expect continued operating expense discipline, with the uptick in 2018 due to a normalization of expenditures after cost reduction in 2017 due to unfavorable weather.
Favorable weather was partially responsible for AEP's strong year. Improving returns due to positive rate case outcomes also aided results. Regulated returns systemwide were 9.7% for the rolling 12 months. Improved and pending rate outcomes should push returns more in line with our long-term 10% expectations.
American Electric Power Company is a public utility holding company. The public utility subsidiaries of the company provide electric service, consisting of generation, transmission and distribution, on an integrated basis to their retail customers. The service areas of the company's public utility subsidiaries cover portions of the states of Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia and West Virginia. Transmission networks are interconnected with distribution facilities in the territories served. The company's service company subsidiary provides accounting, administrative, information systems, engineering, financial, legal, maintenance and other services.
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