Diversified utility provider
) reported second quarter 2012 earnings of 73 cents per share,
sweeping past the Zacks Consensus Estimate of 60 cents on strong
numbers from regulated utility operations partially offset by lower
numbers from merchant generation operations. Following the release
of second quarter 2012 results on August 2, 2012, analysts have had
almost a week to appraise the news. Below, we cover the earnings
announcement, subsequent analyst estimate revisions and the Zacks
ratings for both the short-term and the long-term outlook for the
Earnings Report Review
Net revenues in the quarter declined 6.8% to $1.7 billion, in line
with the Zacks Consensus Estimate. Revenue from Electric sales was
down 6.3% year over year to $1.5 billion, while revenue from Gas
declined 12% year over year to $147 million.
Ameren's net earnings were $211 million, compared with the year-ago
quarterly net income of $138 million. Second quarterly results
however include an income-tax benefit of $39 million related to an
The Ameren Missouri segment reported an increase in earnings
through a favorable Federal Energy Regulatory Commission (FERC)
order related to a disputed power purchase agreement; the absence
of a charge related to the fuel adjustment clause; and new electric
The Ameren Illinois segment reported a decrease in earnings due to
increased reliability spending, excluding storm-related costs, and
higher other taxes.
The Merchant Generation segment digested losses due to lower market
prices for electricity.
(Read our full coverage on this earnings report:
Ameren Beats EPS, Revenue In-line
Agreement of Estimate Revisions
Following the second quarter earnings release, analysts
apprehending a continuing trend of lower demand, weak prices and a
sluggish economic recovery remained on the sidelines. We attribute
no negative revisions owing to the strong financial results in the
reported quarter from the company's regulated businesses and focus
on cost structure improvement of its Merchant Generation business.
A lower cost structure will help the company to counterbalance the
ongoing trend of low power prices and will act as a margin booster
for any improvement in power prices. As a result, out of the 4
analysts covering the stock, none have revised their estimate for
the ongoing quarter.
The sideways trend continued for full-year 2012, where out of 8
analysts covering the stock, a lone analyst has revised the
estimate upward with no corresponding negative revision.
Magnitude of Estimate Revisions
Owing to a single upward revision with no corresponding negative
revision, the consensus estimate for full year 2012 over the past
week rose to $2.36 from $2.33. Also, given no revisions in
estimates over the past week, the consensus estimate for the third
quarter has remained at $1.32 over the past week.
St. Louis-based Ameren Corporation is a holding company which
engages in the generation and distribution of electricity and
natural gas and serves residential, commercial, industrial and
wholesale end-markets in Missouri and Illinois.
With a generating capacity of 15,900 megawatts, the company,
through its subsidiaries, serves 2.4 million electric customers and
more than 0.9 million natural gas customers in a 64,000-square-mile
AMEREN CORP (AEE): Free Stock Analysis Report
EXELON CORP (EXC): Free Stock Analysis Report
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Ameren's stable and regulated electric power operations in the
Midwest market generate a relatively stable and growing earnings
stream. Future growth will be guided by improved plant operations,
higher rates in Missouri and Illinois, lower operations and
maintenance expenses, and installation of emissions reduction
equipment (scrubbers) at its generation plants.
Currently, Ameren has a short-term (1 to 3 months) Zacks #3 Rank
("Hold") and a long-term (6+ months) Neutral recommendation.
Our cautious stance on Ameren takes into account its significant
fossil fuel based generating units and uncertainty about the rate
of recovery of the economy. To comply with state and federal
regulations, the company has to invest a significant chunk to
reduce emissions from its generation assets, including installation
of selective catalytic reduction and overfire air to control
nitrogen oxide emissions and the use of activated carbon injection
to control mercury emissions. Also, the company, in the near term,
is negatively impacted by the impairment charges related to Ameren
Energy Resources Generating Company's Duck Creek Energy Center.
While Ameren's liquidity position is sound and growth potential is
also attractive, we continue to believe that the near- to
medium-term outlook for merchant power generators is tepid.
Performance in the second quarter has been affected by lower power
prices in the merchant power segment. In the near term, the
scenario is unlikely to change and the company will resort to
hedging its power prices to a greater extent.
Given these headwinds, we believe that Ameren's current valuation
adequately reflects its fairly balanced risk/reward profile. As
such, we see limited upside from current levels. This is in line
with its peers like the Illinois utility
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that
earnings estimate revisions are the most powerful force impacting
stock prices. He turned this ground breaking discovery into two of
the most celebrated stock rating systems in use today. The Zacks
Rank for stock trading in a 1 to 3 month time horizon and the Zacks
Recommendation for long-term investing (6+ months). These "Earnings
Estimate Scorecard" articles help analyze the important aspects of
estimate revisions for each stock after their quarterly earnings
announcements. Learn more about earnings estimates and our proven
stock ratings at