Finance

AEP Stock Soars 5.5%: Why Investors Overlooked the Initial Earnings “Miss”

AEP shares surged over 5.5% after GAAP earnings beat estimates and the company projected strong future growth.

byAndres Castro

October 29, 2025, 5:06 PM

Person analyzing stock market charts on a tablet and computer screens.

Investor analyzing stock market data on multiple screens. By MDL.

Executive Summary

American Electric Power (AEP) shares rose over 5.5% after its GAAP earnings per share for Q3 surpassed analyst expectations, correcting an initial perception of a miss.

AEP’s management issued optimistic guidance, confirming full-year 2025 earnings in the upper half of its range and projecting a new, higher long-term operating earnings growth rate of 7-9% over the next five years.

Despite the positive momentum, AEP’s stock trades at over 20 times current year earnings, a valuation considered high for its projected growth, though its 3.3% dividend yield offers an income incentive.

The Story So Far

American Electric Power’s stock saw a significant rally because, despite an initial perception of missing estimates, its GAAP earnings per share for the third quarter actually surpassed analyst expectations. This positive surprise was further bolstered by management’s optimistic outlook, which confirmed full-year earnings in the upper half of its guidance range and projected an accelerated long-term operating earnings growth rate of 7-9% for the next five years, supported by anticipated annual increases in its rate base.

Why This Matters

American Electric Power’s stock rallied on better-than-expected GAAP earnings and an optimistic outlook, projecting 7-9% long-term operating earnings growth, which could signal confidence for investors. However, this growth is supported by an anticipated 10% annual increase in its rate base, potentially leading to higher utility costs for customers. The current valuation of over 20 times earnings for a single-digit growth company also raises questions, despite its attractive 3.3% dividend yield.

Who Thinks What?

AEP’s management projects an optimistic future, confirming full-year 2025 earnings in the upper half of its guidance and anticipating a new, higher long-term operating earnings growth rate of 7-9% over the next five years.

Investors reacted positively to AEP’s GAAP earnings surpassing analyst expectations and the upward revision of its long-term growth outlook, leading to a significant rally in the company’s stock.

Some market observers note that AEP stock trades at a high valuation of more than 20 times its current year’s consensus earnings, despite projecting single-digit earnings growth, though they acknowledge the 3.3% dividend yield as a potential mitigating factor.

American Electric Power (AEP) shares saw a significant increase on Wednesday, rising over 5.5% despite an initial perception of missing third-quarter earnings estimates. The utility company’s stock rallied after a closer look at its financial results revealed that its GAAP earnings per share (EPS) surpassed analyst expectations, and management provided an optimistic outlook for future growth.

Q3 Earnings Performance

For the third quarter, analysts had projected AEP to report $1.81 per share in earnings on $5.6 billion in revenue. The company initially reported operating earnings of $1.80 per share and sales of $5.4 billion, suggesting a slight miss. However, AEP’s earnings calculated under Generally Accepted Accounting Principles (GAAP) came in at $1.82 per share, exceeding analyst forecasts.

While the GAAP earnings represented a modest year-over-year increase of less than 1% from $1.80 in the prior-year quarter, the positive surprise on the GAAP metric contributed to the stock’s performance. As of 3:28 PM ET on October 29, 2025, AEP’s stock was trading at $121.93, marking a 5.92% increase for the day.

Future Growth Projections

AEP’s management issued guidance confirming expectations for full-year 2025 earnings to fall within the upper half of its previously stated range of $5.75 to $5.95 per share. This aligns closely with analyst expectations, which currently sit at $5.90 per share.

Furthermore, the company indicated a potential for a new, higher long-term operating earnings growth rate, projecting 7-9% growth over the next five years. This accelerated growth plan is reportedly supported by an anticipated 10% annual increase in its rate base, suggesting future rate adjustments for customers.

Market Reaction and Valuation

The positive revisions to AEP’s long-term growth outlook appeared to reassure investors, fueling the day’s stock gains. American Electric Power currently holds a market capitalization of $62 billion.

Despite the positive momentum, some market observers note that AEP stock trades at more than 20 times its consensus earnings for the current year. This valuation is considered high for a company projecting single-digit earnings growth. However, the company’s 3.3% dividend yield may offer a mitigating factor for investors seeking income.