American Electric Power Co. Inc. (NYSE: AEP) may have done well after earnings this week, but apparently Credit Suisse thinks the valuation merited a downgrade. The firm lowered its rating to Neutral from Outperform, stating that the street needs to rebase, which led to a price target cut to $62 from $67.

Credit Suisse did admit that it likes what AEP is doing strategically. That includes improving return on equity, boosting its transmission investments and moving out of the non-regulated businesses.

The downside up front was that the firm feels like AEP’s consensus earnings estimates are still just too high. It thinks earnings per share (EPS) estimates are too high by $0.06 in 2016, as well as by $0.09 per share in 2017 and $0.13 per share in 2018. Credit Suisse further points out that there remains the unknown over how the Ohio generation PPA will actually come into play.

The firm further noted that it does not see AEP shares as expensive, but it no longer sees them as cheap either. The firm made the following estimate changes for years 2015 to 2018: to $3.73, $3.67 (from $3.66), $3.83 (from $3.85), and $4.01. That puts AEP in the middle of the 4% to 6% EPS growth range from the 2014 starting point of $3.30 EPS.

Credit Suisse’s key fundamental points were stated as follows:

The Ohio generation PPA remains the focal point where admittedly none of us knows how the discussion resolves. The structure of a PPA – if one materializes – will obviously impact what AEP does next: it plans to provide a decision in the first quarter of 2016, which then raises the questions around the process to sell and at what price considering the depressed values reflected in the IPP stock prices. Assuming effective redeployment of generation sale proceeds, we can see AEP filling in the earnings gap with the exit of generation if the net proceeds support incremental transmission capital spending of about $2.2 billion although deploying that much capital could lead to a nearer-term dip in earnings given the lags in deploying the money and in seeing the investments reflected in earnings.

AEP was recently named as one of nine stocks that can raise dividends for a decade. While this report may put some of the top upside at-risk, the reality is that the lower targets here just do not make up enough of a net hit to put the dividend at a point that it cannot grow at a more reasonable rate.

AEP shares were last seen Friday down 2.7% at $57.55, against a consensus analyst price target of $61.92 (meaning Credit Suisse is still above consensus in future share value) and against a 52-week range of $52.29 to $65.38.

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