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Ameren (AEE) Q2 Earnings: Disappointment in the Cards?

Ameren CorporationAEE will release second-quarter 2016 financial results before the market opens on Aug 5. In the previous quarter, the utility reported a positive earnings surprise of 4.88%. Let's see how things are turning out for the quarter to be reported.

Factors at Play

Ameren operates a rate-regulated business and has a stable earnings base of 2.4 million electric customers and more than 900,000 natural gas customers across a 64,000-square-mile area. The company is currently concentrating on its rate-regulated utilities and expects 6.5% compound annual rate base growth from 2015 through 2020. Focus on its regulated utilities will help to meet projected compound annualized earnings growth of 5-8% in the 2016-2020 period.

Ameren continues to invest systematically in growth projects and infrastructure upgrade. The company had earlier stated its plans to invest $2.1 billion in 2016. Under the Modernization Action Plan, the company will install around 148,000 electric and 103,000 gas meters in 2016. These initiatives will enable the company to provide reliable services to its customers, besides meeting increasing demand.

For the second quarter, the Zacks Consensus Estimate for earnings reflects a 9.1% year-over-year decline.

The company's service territories witnessed above-average temperatures during the second quarter. This should translate into increased electric sales in these regions, which in turn, should boost the top line.

However, increasing stringency of government regulations to ensure clean power generation remains a major concern. Moreover, Ameren's businesses are commodity price sensitive. Any upward movement in coal, gas and other commodity prices could drive the company's operating costs, thereby affecting margins.

AMEREN CORP Price and EPS Surprise

AMEREN CORP Price and EPS Surprise | AMEREN CORP Quote

Earnings Whispers

Our proven model does not conclusively show that Ameren is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here, as you will see below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -1.89%. This is because the Most Accurate estimate stands at 52 cents, while the Zacks Consensus Estimate is pegged higher at 53 cents.

Zacks Rank: Ameren has a Zacks Rank #4 (Sell). As it is, we caution against stocks with a Zacks Ranks #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is witnessing negative earnings revisions.

Stocks to Consider

Here are a few other operators in the electric utility space that you may consider instead, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Pattern Energy Group Inc. PEGI has an Earnings ESP of +100.00% and a Zacks Rank #3. The company is scheduled to release second-quarter results on Aug 8.

AES Corporation AES has an Earnings ESP of +11.11% and a Zacks Rank #3. The company will report second-quarter results on Aug 5.

Great Plains Energy Incorporated GXP has an Earnings ESP of +14.63% and a Zacks Rank #2. The company is expected to release second-quarter results on Aug 4.

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AMEREN CORP (AEE): Free Stock Analysis Report

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PATTERN ENERGY (PEGI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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