Tactical Energy Innovations Set To Power Robust Growth And Revenue Uptick

Key Takeaways

• Strong infrastructure investments in regulated sectors and renewables are expected to drive revenue growth through improved energy reliability and cleaner energy.
  
• Economic growth and strategic regulatory advancements in Missouri and Illinois are anticipated to enhance revenue stability and support earnings growth.
  
• Flat earnings, regulatory challenges, and dependence on approvals could hinder Ameren's growth and earnings stability, impacting investor confidence and revenue potential.

Catalysts

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

• Ameren's strong investment pipeline and infrastructure improvements, particularly in rate-regulated infrastructure and renewable energy projects, are expected to drive future revenue growth through enhanced energy reliability and cleaner energy offerings.
  
• Economic growth in the Greater St. Louis region, with high employment growth and strong weather-normalized retail sales, is anticipated to boost future revenue prospects from increased energy demand across customer classes in Missouri.
  
• The approval and development of significant investment opportunities, such as the $3.6 billion MISO transmission projects and the 800-megawatt Castle Bluff natural gas energy center, are set to enhance Ameren's rate base and support earnings growth.
  
• Strategic advancements in Ameren's regulatory frameworks, including the Illinois Multi-Year Rate Plan and Missouri Smart Energy Plan, are poised to improve revenue stability and growth through favorable rate adjustments and infrastructure investment recovery.
  
• Ameren's robust pipeline of investment opportunities and expected long-term earnings growth of 6% to 8% per year over the next five years position the company to increase earnings per share, supporting a compelling total return for shareholders.

Ameren Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ameren's revenue will grow by 7.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.1% today to 17.6% in 3 years time.
• Analysts expect earnings to reach $1.6 billion (and earnings per share of $5.5) by about November 2027, up from $1.1 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.3x on those 2027 earnings, down from 21.7x today. This future PE is lower than the current PE for the US Integrated Utilities industry at 20.4x.
• Analysts expect the number of shares outstanding to grow by 2.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.92%, as per the Simply Wall St company report.

Ameren Future Earnings Per Share Growth

Risks

• Ameren's adjusted earnings were flat year-over-year at $1.87 per share Q3 2024 compared to Q3 2023, reflecting limited growth, which could impact investor confidence in future revenue or earnings potential.
  
• The ongoing settlement and regulatory charges related to the Rush Island Energy Center and FERC's base return orders could indicate potential future legal or regulatory costs, impacting net margins.
  
• MISO Tranche 2.1 transmission projects are expected to be in service by 2032-2034, highlighting a longer-term realization of benefits, which may delay anticipated revenue streams.
  
• Economic development and customer growth are significant drivers, yet the risk of overestimating demand or facing competition from other service territories could lead to fewer new contracts, impacting expected future revenues.
  
• Dependence on regulatory approvals for projects and updates to the Missouri Integrated Resource Plan (IRP) creates uncertainty regarding the timing and cost recovery of investments, potentially impacting earnings stability.

Valuation

• The analysts have a consensus price target of $89.21 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 $98.0, and the most bearish reporting a price target of just $79.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $8.9 billion, earnings will come to $1.6 billion, and it would be trading on a PE ratio of 19.3x, assuming you use a discount rate of 5.9%.
  
• Given the current share price of $92.03, the analyst's price target of $89.21 is 3.2% lower. 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.