Citi values shares of AEP using a DCF-driven SOTP approach. We assign value to the regulated business, which we think deserves a terminal multiple of 18.5x due to its attractive T&D growth. We also assign ~($9)/share value to corporate and other assets and effect of tax asset. The rounded sum-of-the-parts gets us to our $109 target price.

AEP is subject to a number of risks, including regulatory risk in jurisdictions where it operates regulated utilities, market risk with respect to its unregulated assets, and construction risk with respect to its transmission and other projects under construction.

All these risks may prevent shares of AEP from reaching our target price. Likewise, if any of these factors proves to have less of an effect than we anticipate, the stock could outperform our target.