The old UE was very conservative and an excellent income stock. The new AEE bought a few very poor plants in IL that have required big $$ to turn around. The two executives responsible retired (left) this summer. The new man in charge of the East side CAN get it done. Dereg plan in IL has been a disaster. AEE has been very generous in compromise. Ameren owns 8 of the cleanest emission coal-fired plants in the US. They are spending big $$ to make their few cyclone coal-fired plants the as clean as possible. MO has and continues to hold them hostage over the Taum Sauk failure. A stupid blunder, but there has to be an end to the legalized extortion. I have never been able to understand why the market doesn't like AEE. They might need to increase the dividend to get back in favor.
Thanks for the post Dan, very informative. Read up on the Taum Sauk fiasco, unbelievable the series of mistakes that were made. But one would think that mess has already been factored into the stock price.
AEE is trading very close to book value but so are a number of other utilities, historically that is unusual. These depressed valuations are certainly being driven by the ongoing credit crisis.
Although treasuries yields are extremely low financing corporate debt remains elevated, which is not good for utilities since they finance a good deal of their operations through the debt markets.
AEE's debt level has grown the past couple years most likely to finance the projects you referred to in your post, so maybe one of the reasons it is underperforming.
Also AEE has hedged the majority of its fuel costs into 2010. Unfortunately this can work against them if coal, natural gas, oil, drops in price as it has of late.
AEE definitely seems ahead of the curve as far as producing clean energy which will work in their favor once this credit mess gets resolved.
A slowing economy will slow demand for electricity and increase defaults in payments which will negatively effect earnings, but it will also help in peak demand regards.
I think the biggest blunder by AEE mgt is their handling of rate increases. I have read AEE rates are discounted nearly 40% compared to other utilities. But now that the economy is falling out of bed, it will be difficult for AEE to play catch up and pass the necessary increases to make up for the short fall.
What AEE has going for it, it continues to be a monopoly, and electricity is something most cannot go without. And AEE has grown into quite the juggernaut as far as the area it covers, and the amount of electricity it can produce.
I think the trump card for all utilities in the future is the electric car which should push demand significantly higher. And cars will be recharged at night so it won't be an additional burden on peak demand.
I tend to agree with you that the marketplace is undervaluing AEE, hopefully that will change soon. In the meantime enjoy the 7% dividend.