Ameren needs to recharge, investors leery

Ameren Illinois/Meghan Schiller/MEDILL

Ameren Corp. is trying to buy time to meet new state emissions limits, but as long as the regulatory picture remains out of focus, income-seeking investors may want to look elsewhere.

Analysts say investors should be leery of the company’s ability to pay the high costs of Illinois environmental controls. Ameren recently asked Illinois for an extension to meet the state’s emissions limits, to 2020 from 2015, saying that weak power prices make it harder to foot the costs to bring its coal-fired power plants into compliance.

“Its predominantly coal-based generation assets and pending regulatory cases are a matter of concern,” says Zacks Equity Research.

Morningstar Inc. analyst Andrew Bischof agrees.

“Ameren still operates in the two of the most challenging regulatory jurisdictions in the country [Illinois and Missouri], and we expect it will continue to struggle to reduce regulatory lag,” said Bischof.

Even without regulatory uncertainty, Ameren has been struggling to report numbers that will spark investor confidence.

The company swung to a loss in the first quarter, reflecting a steep one-time impairment charge, warmer-than-usual temperatures and depressed power prices. Reported earnings fell short of the year-ago figure by three cents. Adjusted earnings per share came in at 22 cents, below Wall Street estimates. Only one of 14 analysts surveyed by Bloomberg recommends buying the shares.

The Midwest utility holding company reported a net loss of $403 million, or $1.66 per share in the quarter ended March 31, compared with $71 million, or 29 cents per share, the year-earlier quarter. Excluding the one-time hit,  Ameren recorded a non-GAAP net income of $53 million, or 22 cents per share, compared with $60 million, or 25 cents per share, a year ago.

Still, Ameren is maintaining its 2012 outlook.

“While first quarter results were negatively affected by unusually warm winter weather, we continue to expect that core earnings will be in the range of $2.20 to $2.50 per share for the year,” said Thomas R. Voss, chairman, president and CEO of Ameren Corp.

Even if the stars align for Ameren, analysts say it’s still too soon for investors to wish for a quick turn-around.

“Ultimately, we are pessimistic about Ameren’s earnings growth given the regulatory challenges it faces in two difficult states and the shrinking contribution of the merchant generation fleet,” said analyst Bischof. “As a result, we recommend investors look elsewhere for opportunities in utilities.”

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