Missouri Energy Infrastructure Investments Will Unlock New Opportunities

Key Takeaways

• Strategic investments and supportive regulations in Missouri foster revenue growth and enhance reliability, creating a favorable economic ecosystem.
  
• Ameren anticipates notable earnings growth through infrastructure projects and increasing data center demand, highlighting potential for significant revenue enhancement.
  
• Reliance on infrastructure investments and regulatory support makes Ameren vulnerable to political changes, impacting capital-raising, net margins, and earnings growth.

Catalysts

Operates as a public utility holding company in the United States.

• Ongoing investments in energy infrastructure are enhancing reliability and economic growth, driving customer satisfaction and potentially increasing revenue through improved services.
  
• A regulatory framework in Missouri supports investment in reliable energy, fostering a conducive environment for attracting capital, which increases opportunities for revenue growth.
  
• Significant economic development and job creation in Missouri, supported by new legislation, could boost regional economic activity and demand, directly impacting revenue.
  
• Strong growth in data center demand is expected to deliver a 5.5% compound annual sales growth in Missouri from 2025 through 2029, boosting revenue significantly.
  
• Ameren's expectation of a 6% to 8% compound annual earnings growth rate from 2025 through 2029, driven by strategic infrastructure investments, suggests potential for improved earnings performance.

Ameren Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ameren's revenue will grow by 7.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 15.9% today to 17.7% in 3 years time.
• Analysts expect earnings to reach $1.7 billion (and earnings per share of $5.87) by about May 2028, up from $1.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.8x on those 2028 earnings, down from 22.2x today. This future PE is lower than the current PE for the US Integrated Utilities industry at 21.4x.
• Analysts expect the number of shares outstanding to grow by 1.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Ameren Future Earnings Per Share Growth

Risks

• The reliance on significant infrastructure investments and legislative support means Ameren is vulnerable to changes in regulatory or political environments, which could impact their ability to raise capital on favorable terms and affect long-term earnings growth and net margins.
  
• Supply chain challenges and tariff implementations pose a risk to project costs and timelines, particularly for solar and gas generation projects, potentially leading to increased capital spending that could squeeze net margins and weaken the balance sheet.
  
• The expansion into additional gigawatts for data centers is contingent upon specific service agreements yet to be finalized, introducing uncertainty in terms of the expected ramp-up and timing, which could impact projected revenue growth.
  
• High dependence on constructing new generation facilities within specific timelines makes Ameren susceptible to fluctuations in construction and equipment costs, alongside potential delays that could affect reliability and planned capital deployment, impacting future earnings predictability.
  
• The competitive bidding process for MISO transmission projects introduces execution risk; failing to secure bids or encountering increased competition could divert anticipated revenue streams and impact earnings forecasts.

Valuation

• The analysts have a consensus price target of $102.408 for Ameren based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $118.0, and the most bearish reporting a price target of just $88.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $9.4 billion, earnings will come to $1.7 billion, and it would be trading on a PE ratio of 20.8x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $99.46, the analyst price target of $102.41 is 2.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.