American Electric Power's (AEP) $2.8 billion transmission sale and Texas organic growth potential make its shares attractive, with a 4.5% discount on 2026 EPS, BofA Securities said in a note Monday.

Since August 2024, American Electric Power has underperformed by 5% due to a revised lower 2025 guidance midpoint and concerns over significant equity dilution to address perceived balance sheet weakness, BofA said.

"We are upgrading [American Electric Power] to Buy from Underperform following the announcement of a 19.9% minority sale of transmission holding company assets for $2.8 [billion] and the appointment of Trevor Mihalik as [chief financial officer]," BofA said.

The brokerage views the asset sale as a replacement for external equity needs, reducing near-term equity issuance to $2 billion in H2 2025. It expects AEP to achieve 6% to 8% earnings per share growth, supported by balance sheet improvements and a 15% funds from operations, or FFO-to-debt ratio, making the company an "attractive" investment due to potential future earnings growth, the note said.

Following the transaction, the brokerage forecasts EPS of $5.83 in 2025, $6.26 in 2026, $6.80 in 2027, and $7.33 in 2028, with most growth expected in 2027-2029 due to the minority sale and equity issuance, the report said.

BofA upgraded American Electric's stock rating to buy from underperform and also raised the company's price target to $104 from $98.

Price: 93.82, Change: +0.30, Percent Change: +0.33