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Guggenheim upgrades AEP, calls Wind Catcher project 'pure upside'

Guggenheim Securities LLC on Feb. 20 upgraded American Electric Power Co. Inc. shares to "neutral" from "sell," with a price target of $64.

Guggenheim's upgrade reflects a view that investor expectations are realistic about the possibility that AEP's ambitious, 2,000-MW Wind Catcher generation project may not get approved.

Guggenheim downgraded AEP earlier in 2018 as hearings were underway in Oklahoma, where analysts "did not anticipate constructive feedback from this jurisdiction in particular."

A state administrative law judge ruled that Public Service Co. of Oklahoma has not proven the need for the wind farm and failed to consider reasonable alternatives in order to justify cost recovery for the project.

AEP's share price did not plunge following the setback for the proposed wind project, leading Guggenheim analyst Shahriar Pourreza to feel "confident that expectations had likely been grounded without Windcatcher when we saw the ALJ's recommendation effectively shrugged off by the market."

Analysts believe that the company's "$4.5 [billion] project now presents appealing upside, although it would have to clear some more hurdles before we would be comfortable enough to include potential contributions in our outlook or multiple, namely in [Oklahoma]."

Pourreza added that "any constructive developments for the project going forward now represent pure upside" and the wind facility represents a "significant investment opportunity in the state."