Using an unlevered Free Cash Flow to Firm (FCFF) model, we project American Electric Power Company, Inc.'s cash flows over 5 years with line-by-line expense modeling. Revenue is projected revenue growing from 6.3% to 5.4% annually, with expenses (COGS, SG&A, R&D) held at historical ratios. Depreciation is computed from a vintage matrix based on a 5-year useful life. Working capital is modeled using historical turnover days (DSO 47, DPO 68, DIO 40). At a 6.1% WACC with mid-year discounting, the terminal value (87% of enterprise value) is derived by applying the industry peer median EV/EBITDA multiple of 12.8x to Year 6 EBITDA. After subtracting net debt, the equity value implies a fair price of $162.07 per share, suggesting AEP is undervalued by 25.7% at the current price of $128.92.
Adjust parameters to explore scenarios. Changes are for exploration only and do not affect saved valuations.
| 2026 | 2027 | 2028 | 2029 | 2030 | Terminal | |
|---|---|---|---|---|---|---|
| Profit Before Tax | 3,643 | 3,853 | 4,104 | 4,583 | 4,831 | 4,952 |
| (−) Net Interest | 1,961 | 2,074 | 2,209 | 2,467 | 2,600 | 2,665 |
| (+) D&A | 4,063 | 3,926 | 3,646 | 3,290 | 4,541 | 4,654 |
| EBITDA | 9,667 | 9,854 | 9,960 | 10,340 | 11,972 | 12,271 |
| (−) Tax | 66 | 70 | 75 | 84 | 88 | — |
| (−) CapEx | 5,081 | 5,375 | 5,725 | 6,393 | 6,738 | — |
| (−) ΔWC | 664 | 100 | 119 | 226 | 117 | — |
| Free Cash Flow (FCF) | 3,855 | 4,309 | 4,042 | 3,638 | 5,029 | — |
| Peers' EBITDA Multiple | 12.8x | |||||
| Terminal Value | 156,459 | |||||
| WACC / Discount Rate | 6.12% | |||||
| Timing of FCF (mid year) | 0.5 | 1.5 | 2.5 | 3.5 | 4.5 | 5 |
| Present Value of FCF | 3,743 | 3,942 | 3,484 | 2,955 | 3,850 | 116,274 |
| Enterprise Value | 134,247 | |||||
| Projection Period | 17,974 | 13.4% | ||||
| Terminal Value | 116,274 | 86.6% | ||||
| (−) Current Net Debt | 49,973 | |||||
| Equity Value | 84,274 | |||||
| (÷) Outstanding Shares | 520M | |||||
| Fair Price | $162 | +25.7% | ||||
| WACC \ EV/EBITDA Exit Multiple | 8.8x | 10.8x | 12.8x | 14.8x | 16.8x |
|---|---|---|---|---|---|
| 4.1% | $109 | $147 | $186 | $225 | $263 |
| 5.1% | $100 | $137 | $174 | $210 | $247 |
| 6.1% | $92 | $127 | $162 | $197 | $232 |
| 7.1% | $84 | $118 | $151 | $185 | $218 |
| 8.1% | $77 | $109 | $141 | $173 | $204 |
Current price: $128.92. Green = undervalued, Red = overvalued.
Based on default parameters
This is an unlevered Free Cash Flow to Firm (FCFF) model with a 5-year projection period. Revenue, expenses, D&A, and working capital are projected using the same line-by-line approach as the Growth Exit models. The key difference is the terminal value methodology: instead of assuming perpetual cash flow growth, the terminal value is calculated by applying the industry peer median EV/EBITDA multiple to the projected Year 6 EBITDA.
Using a peer exit multiple anchors the terminal value to how the market currently prices comparable companies, rather than relying on a theoretical perpetual growth assumption. This approach captures relative valuation dynamics and is particularly useful when a company is expected to converge toward industry-average profitability over time. The sensitivity matrix shows how fair value changes across different WACC and EV/EBITDA multiple scenarios.