Stocks Utilities

Ameren Corp Valuation – March 2019 #AEE

Company Profile (excerpt from Reuters): Ameren Corporation (Ameren), incorporated on August 7, 1995, is a utility holding company. The Company’s primary assets are its equity interests in its subsidiaries, including Ameren Missouri, Ameren Illinois and Ameren Transmission Company (ATXI). The Company operates through four segments: Ameren Missouri, Ameren Illinois Electric Distribution, Ameren Illinois Natural Gas and Ameren Transmission. The Ameren Missouri segment includes all of the operations of Ameren Missouri. The Ameren Illinois Electric Distribution segment consists of the electric distribution business of Ameren Illinois. The Ameren Illinois Natural Gas segment consists of the natural gas business of Ameren Illinois. The ATXI segment is primarily composed of the aggregated electric transmission businesses of Ameren Illinois and ATXI.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AEE – March 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $17,540,601,213 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.57 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -780.47% Fail
6. Moderate PEmg Ratio PEmg < 20 24.50 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.28 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.57 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -6.81 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.93
MG Growth Estimate 15.00%
MG Value $112.68
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $42.44
MG Value based on 0% Growth $24.88
Market Implied Growth Rate 8.00%
Current Price $71.70
% of Intrinsic Value 63.63%

Ameren Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.35 in 2015 to an estimated $2.93 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 8% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Ameren Corp revealed the company was trading above its Graham Number of $47.77. The company pays a dividend of $1.85 per share, for a yield of 2.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 24.5, which was above the industry average of 23.71. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-72.59.

Ameren Corp receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$72.59
Graham Number $47.77
PEmg 24.50
Current Ratio 0.57
PB Ratio 2.28
Current Dividend $1.85
Dividend Yield 2.58%
Number of Consecutive Years of Dividend Growth 5

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $1,533,000,000
Total Current Liabilities $2,687,000,000
Long-Term Debt $7,859,000,000
Total Assets $27,215,000,000
Intangible Assets $411,000,000
Total Liabilities $19,442,000,000
Shares Outstanding (Diluted Average) 246,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.25
Dec2018 $3.32
Dec2017 $2.14
Dec2016 $2.68
Dec2015 $2.59
Dec2014 $2.40
Dec2013 $1.18
Dec2012 -$4.01
Dec2011 $2.15
Dec2010 $0.58
Dec2009 $2.78
Dec2008 $2.88
Dec2007 $2.98
Dec2006 $2.66
Dec2005 $3.02
Dec2004 $2.84
Dec2003 $3.25
Dec2002 $2.61
Dec2001 $3.40
Dec2000 $3.33
Dec1999 $2.81

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.93
Dec2018 $2.72
Dec2017 $2.34
Dec2016 $1.95
Dec2015 $1.35
Dec2014 $0.64
Dec2013 $0.02
Dec2012 -$0.08
Dec2011 $2.01
Dec2010 $2.09
Dec2009 $2.85
Dec2008 $2.88
Dec2007 $2.90
Dec2006 $2.87
Dec2005 $2.99
Dec2004 $3.01
Dec2003 $3.09

Recommended Reading:

Other ModernGraham posts about the company

Ameren Corp Valuation – May 2018 $AEE
Ameren Corp Valuation – February 2017 $AEE
Ameren Corp Valuation – August 2016 $AEE
Ameren Corporation Analysis – 2015 Update $AEE
21 Companies in the Spotlight This Week – June 14, 2014

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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