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We have maintained our long-term Neutral recommendation on Ameren Corporation (AEE - Analyst Report) on Aug 30, 2013.

Why the Reiteration?

The St. Louis-based utility provider reported lackluster second quarter 2013 results with earnings missing our expectation by 10.2%. The quarterly result also plunged 33.3% year over year. The lower number mainly reflects the result of a planned nuclear refueling outage, impacts of a regulatory decision in 2012 and a court decision in 2013, accompanied by a milder weather.

Again, regulated utility earnings also fell considerably during the quarter in the Missouri segment. Ameren has also slightly reduced the upper end of its 2013 EPS guidance range for the charge resulting from the Missouri Court of Appeals verdict. It now anticipates earnings from continuing operations in the range of $2.00 to $2.15 per share for 2013 versus its previous expectation of $2.00 to $2.20.

On the positive, Ameren’s decision to exit unregulated generation and sell its unregulated power generation business, Ameren Energy Resources Company or AER, to an affiliate of Dynegy Inc. (DYN - Snapshot Report) will improve the business mix.

We view this divestiture plan as a positive for the company as the business continues to be affected by low power prices. Ameren has already locked in some power prices for 2013 and beyond at even lower prices. Hence, the proposed agreement to exit this business is prudent.

Following the divestiture, the company will likely see modestly rising earnings at the core utilities, primarily in Illinois, over the long term. This is backed by the company’s rate base growth through environmental spending, additions to transmission lines and basic maintenance and repair of infrastructure.

Stocks to Consider

Ameren currently retains a Zacks Rank #3 (Hold). Stocks worth considering in the energy space are Zacks Ranked #1 (Strong Buy) Huaneng Power International, Inc. (HNP - Snapshot Report) and Zacks Ranked #2 (Buy) Alliant Energy Corp. (LNT - Snapshot Report).

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