On Jun 25, we issued an updated research report on Ameren Corporation (AEE). The company continues to invest systematically in infrastructure development activities and is gradually increasing the capital outlay.
In first-quarter 2014, Ameren’s capital expenditure was $0.44 billion, up 57.1% from the year-ago figure. The company intends to invest a total of $8.3 billion on regulated infrastructure between 2014 and 2018, with roughly $1.83 billion allocated for 2014. Ameren’s 2014 spending projection reflects a 32.6% year-over-year jump.
The company is progressing well on its Illinois Rivers Transmission Project and plans to invest $1.4 billion on its Ameren Illinois & Ameren Transmission Company of Illinois (:ATXI) ventures. The scheduled completion of these projects will enable Ameren to provide uninterrupted services to its customers.
Ameren, a Zacks Rank #2 (Buy) stock, reported favorable results in first-quarter 2014. Both earnings per share and revenues surpassed the respective Zacks Consensus Estimate and improved year over year. The outperformance was primarily driven by higher demand for electricity transmission services due to a severe winter.
Ameren maintained a stable liquidity position, including available credit of around $1,387 million as well as cash and cash equivalents of $26 million as of Mar 31, 2014. The company also maintained a steady cash inflow. In the first three months of 2014, Ameren’s operating cash flow was $239 million. A healthy liquidity position backed by favorable cash generation capacity provides the necessary funds for the company’s increasing infrastructural investments.
Apart from investing in infrastructure projects, Ameren continues to focus on maximizing shareholder wealth through the payment of regular dividends. In first-quarter 2014, the company paid $97 million as dividends.
We are however concerned about the U.S. administration’s stringent regulations on environmental issues. Coal is the primary fuel for Ameren’s mode of power generation. Recently, the Obama administration rolled out its plan to curb carbon emissions from power plants by 30% by 2030 from 2005 levels. The rule will probably come into effect next year. If the proposal is approved as it is, Ameren will have to invest more to cut pollution from its power generation facilities. This will likely increase the company’s operating costs.
Key Picks from the Sector
Other stocks worth considering in the utility sector include Black Hills Corporation (BKH), Dynegy Inc. (DYN) and NRG Energy, Inc. (NRG). All these stocks carry a Zacks Rank #1 (Strong Buy).