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Significant Expected Growth Rate Earns Dominian Resource A Bullish Thesis

Summary Company’s future performance will remain strong due to strong potentials of growth efforts and capital spending. D’s performance and execution of growth projects highlight ability to attain anticipated level of earnings growth in years ahead. Analysts have anticipated a strong next five-years growth rate of 6.25% for D. I have a bullish stance on Dominion Resource (NYSE: D ); the company is efficiently executing its infrastructural growth strategy that focuses on getting a regulated asset base through the extension of its renewable energy generation project. As a matter of fact, there are a series of ongoing strong infrastructural growth projects being undertaken by the company, which will positively impact its long-term earnings growth. Given the strong potential of its strategic growth investments, I believe the company’s cash flow base will remain strong in the years ahead, due to which D will continue to increase its dividends at a decent pace, which will positively affect the stock price. Growth Investments Are Keeping Me Bullish on D’s Long-Term U.S. utility companies have accelerated their growth investments in order to strengthen their infrastructure and better serve customers. Owing to these hefty growth investments, utility companies will experience growth on their top and bottom-line numbers. Like all other companies in the U.S. utility sector, D has also designed a growth strategy that is centered on the idea of establishing a large and improved energy generation infrastructure through hefty capital investments. In fact, the company has announced that its average annual spending till 2020 will be in a range of $1.2 billion. The following graph details D’s capital investments plan from 2014 to 2020. (click to enlarge) Source: Investors Presentation Currently, there are several ongoing construction projects of the company, which I believe will act as important drivers of its long-term growth; in the first half of 2015, D invested more than $500 million in electric transmission projects. The company is working hard to get an extensive network of regulated, renewable energy generation resources through its hefty investments, in order to comply with strict carbon dioxide regulations. In this regard, two of D’s promising gas supply-based renewable energy generation projects, the Atlantic Cost pipeline (ACP) and Cove point facility, are currently progressing in-line with the schedule. At Cove point, the overall project is 31% complete and around 90% of engineering is near to completion. And for ACP, recent reports reveal that ACP is running ahead of the management’s original plan, with operations expected in November ’18. Due to the effectiveness exhibited by ACPs’ management, I believe investor confidence will improve, which will portend well for the stock price. Moreover, there are several other promising gas generation projects at D, like the project to build 1358MW of natural gas combined cycle facility in Brunswick country, which is proceeding well by staying on-time and on-budget; so far, around 75% of work related to this project is complete and it is expected to begin service in mid-2016. Also, the company has filed for construction approval of 1,588MW gas-fired combined cycle facility in Greensville country, VA, which is expected to be in service in December 2018. The plant is expected to be one of the largest combined cycle gas plants in North America, which will be built under a rate rider, if approved. Apart from its gas-based energy generation projects, the company has been allocating sufficient funds to develop solar energy generation resources. D had invested $700 million to build multiple solar-energy generation projects in Virginia, which will in supply total 400MW of electricity. And under this plan, the first step was taken in January 2015, when the company filed a case for rate rider and CPN for a 20MW solar facility at its Remington power station. If approved, the 20MW facility will be in service by late 2016. In addition, D recently acquired a 265MW solar farm in Utah from SunEdison (NYSE: SUNE ) for $320 million , as part of a joint venture that the two companies had entered into last month. Given the fact that utility companies are growing their renewable asset bases to comply with environmental regulations, I believe all of the above-mentioned renewable energy generation projects of the company will allow it to generate strong sales and healthy earnings in the years ahead. Owing to the strong growth potentials attached to these projects, D’s management is confident of achieving its promising earnings growth target of 6% to 7% through 2020. Also, analysts have projected healthy next five-years earnings growth of 6.25% as shown below. (click to enlarge) Source: Nasdaq.com Investors Remain Rewarded At D Over the past few years, the company has maintained its policy of paying healthy dividends to shareholders, which are backed by its cash flows. D currently offers an attractive dividend yield of 3.77% . Owing to their strong infrastructural growth and development-related investments, all of which will ensure strong cash flows for D, the company’s management has affirmed that they will continue to increase dividends in future, as shown in the graph below. (click to enlarge) Source: Investors Presentation Also, given D’s strong growth prospects, analysts have projected consistent increases in the company’s book value and cash flows per share, as shown below. (click to enlarge) Source: 4-Traders.com Risks The company continues to face the risk of lagging behind the management’s expectations, due to possible construction delays or cost overruns at its ongoing projects. Moreover, unforeseen negative economic headwinds, utility regulations, rate case risk and unfavorable weather conditions are the key risks that might adversely affect D’s future stock price performance. Conclusion I believe D’s performance will remain strong in future due to the strong potentials of the company’s growth efforts and capital spending directed at strengthening its asset base. Also, the company’s performance and execution of growth projects highlight its ability to attain the management’s anticipated level of earnings growth in the years ahead. Moreover, the strong growth efforts will create a strong and stable earnings base for D. Also, the company’s growth efforts will portend well for its cash flows and will allow the company to consistently increase dividends in future years, which will positively affect the stock price. Also, analysts have anticipated a strong next five-years growth rate of 6.25% for D. Due to the aforementioned factors, I am bullish on D. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Strong Business Fundamentals Yet Again Earn American Electric A Power Bullish Thesis

Summary AEP’s regular transmission business investments will help it expand its rate base. The company is likely to sell competitive assets, which will support capital investment plan. AEP’s on-track cost saving efforts will improve its profit margins. American Electric Power (NYSE: AEP ) has been taking the right measures to address industry challenges. The company’s growth efforts will portend well for its future financial performance. AEP’s hefty growth investments to expand and strengthen its transmission business will positively affect its ROE and allow the company to increase its regulated rate base. Also, rate hikes will better the company’s cash flows, top-line and earnings growth in the years ahead. Moreover, recent rate case approvals at Kentucky and West Virginia will positively affect AEP’s future earnings growth. Given the strong growth potential, I believe AEP’s shareholders will continue to enjoy cash returns in the form of dividends. Furthermore, based on my price target of $69 for AEP, the stock offers price appreciation of 19%. Strong Growth Opportunities at AEP Utility companies are keenly investing in their infrastructure development in order to capitalize on the growth potential of the industry. As far as AEP is concerned, the company, like all other utility companies, has escalated its scale of transmission investments in order to maximize its growth opportunities by utilizing the strong potential of regulated transmission operations. The company has acquired a dominant stake in leading U.S.-based transmission projects and its management feels that there is still a lot of work left on the transmission business side, due to which it constantly allocates a huge portion of its CAPEX to transmission-related projects. Year-to-date, AEP has around 2,000 ongoing transmission projects of both small and large scale. And it plans to take in more projects in future, by spending around $5.2billion on transmission-related projects in 2015 to 2017. These transmission-related investments offer huge growth opportunity for the company by means of rate base expansion, which will ultimately better its ROE, top-line and cash flows in the years ahead. AEP recently got rate increase approval from regulators; AEP got rate case increase approval in West Virginia and Kentucky for $75 million and $45.4 million , respectively. Owing to the recent rate increases and due to the strong potential of its transmission investments, I expect the company’s earnings to grow decently in the years ahead. Moreover, I believe that if AEP moves ahead with its plan to sell 7,900MW competitive business assets, it will have sufficient cash available in future to fund its transmission investments. Currently, the decision to sell the company’s competitive assets is on hold due to the pending PPA decision and due to the pending results of the PJM capacity auction. The company has asked regulators to finalize their decision on the PPA by October 1st in order to help it have a clear picture about the future of its competitive assets. Given the fact that Ohio’s deregulated market has placed AEP’s competitive assets at a disadvantage to its peers, I believe the company will go on with the idea of selling its competitive assets. If the company decides to sell its competitive assets, AEP will have a broader regulated asset base, comprising of rapidly growing transmission business, which will portend well for its long-term growth potential. Also, analysts are expecting a healthy next five-years growth rate of 4.93% for AEP, as shown below. Source: Nasdaq.com Furthermore, AEP is making regular efforts to address the growing concerns over environmental pollution. In this regard, the company has already closed 5600MW of its 10 coal fired plants across five different states and expects to close one more plant of 998MW in 2016. Given the fact that recent “Clean Power Plan” from Obama demands a 30% cut in carbon dioxide emission from power companies, I believe the company’s decision of actively closing its coal-fired plants will improve its image and positively affect its cost structure. AEP is already working on an attractive costs saving plan “Lean Deployment”, under which it is actively seeking to lower its cost burden and improve its profit margins. Investors Remain Rewarded At AEP The company has a strong history of making attractive cash returns to shareholders in the form of dividends. Earlier this month, AEP had announced a quarterly dividend payment of $0.53 per share. The stock offers a dividend yield of 3.63% and has a modest payout ratio of 59% . Given the company’s strong fundamentals, AEP’s management has affirmed their commitment to consistently increase dividends in the years ahead, and AEP targets long-term payout ratio to be in a range of 60% to 70% . Analysts are also expecting the company’s book value and cash flows per share to increase in 2016 and 2017, as shown in the chart below. Source: 4-traders.com Uplifted Guidance For 2015 Based on the company’s strong results in the first half of 2015 and due to its on-track strategic growth efforts, AEP’s management has uplifted the earnings guidance for 2015. As per the updated guidance, the company’s EPS for full year 2015 is expected to be in a range of $3.50 to $3.65 , up from the previously issued guidance of $3.40 to $3.60. AEP also raised its CAPEX guidance for 2015 by $200 million for 2015. Price Target I reiterate my previously calculated price target of $69 for AEP, which was calculated using the dividend discount method. In calculating this price target, I used cost of equity of 6% and nominal growth rate of 3%. The stock offers potential price appreciation of 19% based on my price target. Risks The ongoing development programs at the transmission business side of the company might result in cost overruns or delays, due to potential laxness in execution projects by AEP’s management. Furthermore, tightening environmental compliance regulations, unforeseen negative economic changes and adverse weather conditions are key risks that might hamper the company’s future stock price performance. Conclusion I reaffirm my bullish stance on AEP due to its strong business fundamentals. The company’s regular transmission business investments have placed it on a strong top-line growth-generating path by enabling AEP to expand its rate base. Also, the company is most likely to sell its competitive assets, which will not only support AEP’s capital investment plan, but will also broaden its regulated asset base, which will strengthen its cash flow base in the years ahead. Moreover, I believe AEP’s on-track cost saving efforts will improve its profit margins. Given the strong growth potential of the company’s attractive strategic growth initiatives, I believe its cash flows will improve, which will support its dividend growth in future. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Growth And Upside Potential Highlight American Electric Power’s Bullish Credentials Going Forward

Summary Company has encouraging fundamental outlook due to increased efforts on getting a broader regulated asset base. Continuous investments in regulated operations such as transmission business give it huge opportunity for future rate base growth. AEP’s on-track cost containment plan will better its future earnings growth prospects. I have a bullish stance on American Electric Power (NYSE: AEP ); the company’s focus on getting a broader, regulated asset base and its escalated growth investments in the transmission business will better its long-term growth trajectory. In addition, the resolution of the company’s previously filled rate cases with West Virginia and Kentucky by the end of this month will strengthen its future top-line and cash flows. Owing to the attractive outlook of AEP’s future cash flows, I believe its dividend payment will remain attractive for investors. Moreover, the company’s on-track cost savings plan, “Lean deployment”, will continue improving its bottom-line. Furthermore, my price target calculation suggests a potential upside of approximately 25% for AEP. AEP’s Strategic Growth Drivers Remain Intact In the recent past, increased focus on infrastructure development investment by utilities has been positively affecting the industry fundamentals and performance. For 1Q’15, the earnings growth of the U.S. Utility Industry was 8.4% , well above the S&P-500’s growth of only 2.4% year-on-year. As far as AEP is concerned, the company has made great strides in becoming a high-quality regulated utility, with improved execution and better management of its intelligent strategic growth efforts. One of the most important strategic growth drivers, increased focus on regulated asset base, has been helping its financials grow at a decent pace. In fact, AEP’s management has reiterated their intentions to sell the company’s unregulated business under its plan of growing its regulated utility business; the decision is on hold until state regulators make a final decision about the company’s proposal regarding state subsidized purchase power agreement that will help it maintain 3,100MW of coal-fired capacity. AEP has requested regulators make the final decision regarding this matter, at least by October ’15. The prevailing uncertainty around the acceptance of the PPA agreement and the recent industry merchant divestitures make me believe that the company will either sell or spinoff its Ohio-based power generating subsidiary and the proceeds from the sale would be reinvested to support its growth-generating regulated transmission business. In fact, one of its former competitors, Dynegy, is interested in buying AEP’s unregulated assets. Since the transmission business is one of the most promising businesses of AEP, I believe reinvesting cash proceeds from the unregulated business sale in the transmission business will strengthen its long-term growth potentials. Moreover, the sale of Ohio plants (unregulated assets) will support its strategic move, which is away from de-regulated operations to regulated ones. In fact, the company has several multibillion-dollar projects in place for the next five-to-ten years, in order to grow its regulated asset base by improving the operational performance of its transmission business. Currently, AEP stands tall in the U.S. utility business with its major stake in several advanced transmission projects, and moving ahead, further increases in transmission project-related investments will improve its fundamentals. As part of its long-term growth plan, AEP has announced hefty investment of almost $4.8 billion in transmission projects from 2015 to 2017; I believe that these up-scaled investments in the transmission business will help the company’s rate base expand, which will increase its future cash flows and ROE. Moreover, increase in its earned returns will better AEP’s EPS growth. Furthermore, the company’s previously filed rate cases in West Virginia and Kentucky are expected to gain approval at the end of this month. AEP has requested a $227 million rate increase in West Virginia and a $70 million rate increase in Kentucky, which will allegedly go into effect on 1st July 2015. I believe that these recent rate hikes will portend well for raising the level of earned returns for the company and will add towards the certainty of its cash flow base success in the years ahead. On the bottom-line, AEP’s multi-year cost saving plan “Lean deployment” is working really well to get it a leaner cost base. Thus far, the company has completed the implementation of lean deployment at 13 distribution districts, whereas work at almost 19 more is still in process. Moreover, on the transmission business side, AEP has completed work on just one area and four more are scheduled for completion, this year. Given the fact that the implementation of lean deployment is keeping the company’s operational and management (O&M) expense down, I believe with the ongoing execution, cost efficiency gains from the lean deployment plan will keep on improving AEP’s earnings growth level. Safe & Sustainable Returns AEP’s strong growth prospects have been helping its cash flows grow and support its management’s dividend policy. With the increasingly healthy cash payments under its attractive dividend payment policy, the company has earned a strong five-year dividend growth rate of around 4.87%. Keeping track of its attractive dividend payment plan, AEP had recently announced another quarterly dividend payment of $0.53 , which translates into a dividend yield of 3.95% . Given the company’s strong strategic growth prospects and due to its management’s strong commitment towards paying healthy dividend payments, I believe AEP will have cash flows available to make and increase dividends in the years ahead. Guidance The company’s management has reaffirmed its guidance for 2015. AEP expects full year 2015 EPS to be in a range of $3.40-to-$3.60 . Also, it has maintained its stance about achieving long-term earnings growth in a range of 4%-to-6%. Thus far, the company has done pretty well in achieving allowed ROEs at its regulated subsidiaries; I believe its correct growth efforts and cost controls will help AEP achieve its anticipated 4%-to-6% growth rate in the years ahead. Risks The company’s future growth prospects will continue to face the risk of potential negative regulatory restrictions in its service territory. In addition, AEP’s inability to pull off well-timed, constructive regulatory rate base approvals by negotiating with FERC might pressurize its future growth prospects. Moreover, the company’s ongoing and planned development plans, if not properly executed, might burden its bottom-line with cost overruns. Furthermore, unfavorable temperature trends, environmental regulations and unforeseen negative economic changes are key risks hovering over its stock price performance. Price Target I reiterate my previously calculated price target of $69 for AEP, which was calculated using a dividend discounting method. In my price target calculations, I used cost of equity of 6% and nominal growth rate of 3%. Based on my price target, the stock offers potential price appreciation of 25%. Conclusion The company has an encouraging fundamental outlook due to its increased efforts on getting a broader regulated asset base. In fact, continuous investments in regulated operations such as the transmission business give it a huge opportunity for future rate base growth, which increases certainty about its future cash flows and earnings base. Moreover, the company’s on-track cost containment plan will better its future earnings growth prospects. As a matter of fact, the healthy future earnings growth will strengthen its cash flows, which will support its dividends. Furthermore, my price target calculations suggest a potential upside of approximately 25% for the stock. Analysts have also anticipated a healthy next five-years growth rate of 4.92% for AEP. Due to the aforementioned factors, I am bullish on AEP. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.