Ameren's Investments Impress, Stringent Regulations A Woe

On May 18, 2016, we updated a research report on St. Louis, MO-based Ameren Corporation (NYSE:AEE) , a utility company serving nearly 2.4 million electric and more than 900,000 gas customers.

Ameren invests systematically in growth projects and infrastructure upgrade. Over the 2016–2020 time frame, the company expects to spend $11.5 billion, comprising up to $4.3 billion for Ameren Missouri, up to $6.2 billion for Ameren Illinois, and up to $1.0 billion for ATXI.

The investments are aimed to support overall system reliability, environmental compliance, and electric and natural gas utility infrastructure improvements. Under the Modernization Action Plan, the company invested around $145 million in Illinois Electric and natural gas delivery infrastructure projects in the first quarter. These initiatives will enable the company to provide reliable services to its customers, besides meeting increasing demand.

Ameren boasts a solid financial position backed by a strong cash generation capacity. In addition, the company continues to show its efficiency in terms of reporting stable cash inflow through operating activities. The company’s cash flow from operating activities in the first quarter increased 11.9% from the year-ago period. A stable financial position enables Ameren to maximize shareholder value through the payment of regular dividends and repurchase of shares.

On the flip side, Ameren generates a considerable share of electricity from coal-fired facilities. In 2015, coal-based assets accounted for 71% of the total electricity generated by the company. Meanwhile, the U.S. Environmental Protection Agency has revealed the final version of the ambitious climate policy which calls for 28% reduction in carbon pollution from power plants by 2025 and 32% by 2030 from the 2005 levels. The plan sets carbon pollution reduction goals for power plants and has necessitated states to implement plans to meet these goals by 2022. Hence, the company will have to invest substantially in its generation systems, which may impact its profitability.

Despite executing several pollution-control measures and focusing on expanding its renewable portfolio, increasing stringency of government regulations to ensure clean power generation remains a major concern.

Again, Ameren’s businesses are also commodity price sensitive. An upward movement in coal, gas and other commodity prices could increase the company’s operating costs, thereby affecting margins. All these factors could be potential growth deterrents.

Ameren currently has a Zacks Rank #4 (Sell).

Stocks to Consider

Some better-ranked stocks in the power sector include Spark Energy, Inc. (NASDAQ:SPKE) , Avista Corp. (NYSE:AVA) and CenterPoint Energy, Inc. (NYSE:CNP) . While Spark Energy sports a Zacks Rank #1 (Strong Buy), both Avista Corp. and CenterPoint Energycarry a Zacks Rank #2 (Buy).

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AMEREN CORP (AEE): Free Stock Analysis Report

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