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Diversified utility provider Ameren Corporation (AEE - Analyst Report) is expected to report its third quarter 2012 financial results on Friday, November 9, 2012. The Zacks Consensus Estimate for the third quarter of 2012 is $1.42 per share (significant year-over-year decrease of 9.74%) on revenues of $2,126 million (year-over-year decrease of 6.3%).
Last Quarter Recap
Ameren Corporation reported stable second quarter 2012 results. During the quarter, pro forma earnings per share were 73 cents, beating the Zacks Consensus Estimate of 60 cents. Pro forma earnings were also higher than the year-ago figure of 59 cents.
The year-over-year rise reflects increased earnings from regulated utility operations partially offset by decreased earnings from merchant generation operations.
During the quarter, GAAP earnings per share were 87 cents compared with earnings per share of 57 cents in the year-ago period. The significant variation of 14 cents per share between GAAP and pro forma earnings was due to the reduction of tax benefit of 18 cents and a 4 cent loss on net unrealized mark-to-market activity.
In the quarter, net revenues declined 6.8% to $1.7 billion, in line with the Zacks Consensus Estimate. Revenue from Electric sales was down 6.3% year over year to $1.5 billion, while revenue from Gas declined 12% year over year to $147 million.
Ameren raised its pro forma earnings guidance range for full-year 2012 to $2.25 – $2.55 per share, from the prior range of $2.20 – $2.50 per share. GAAP earnings are now expected in the range of $0.70 – $1.00 per share, compared to the prior range of $0.65 – $0.95 per share.
Read our full coverage on this earnings report: Ameren Beats EPS, Revenue In-line
The analysts covered by Zacks expect Ameren to post third-quarter 2012 earnings of $1.42 per share, lower than $1.57 delivered in the prior-year quarter. Currently, the Zacks Consensus Estimate ranges between earnings of $1.35 and $1.48 a share.
For 2012, the Zacks Consensus Estimate stood at $2.47 per share, below than the prior-year earnings of 2.56 per share. The current Zacks Estimate ranges between $2.39 and $2.63 per share.
Estimate Revisions Trend
For the to-be-reported quarter, the estimates show a bullish stance with 2 (out of 7) going northward over the past month with no corresponding opposite revision. We attribute no negative revisions to the resilience of the company’s regulated businesses and focus on cost structure improvement of its Merchant Generation business.
A lower cost structure will help the company to counterbalance the ongoing trend of low power prices and will act as a margin booster for any improvement in power prices. Over the past week however the estimates were kept intact mainly due to lack of news or event, which could have a direct or indirect impact on these things.
For full-year 2012, among the 10 estimates, none moved either upward or downward over the last 7 days. However, over the past month, 2 estimates moved upwards while 1 moved downwards.
The Zacks Consensus Estimate for the third quarter of 2012 fell by a penny over the last 7 days. However, it inched up by 5 cents to $1.42 per share over the last 30 days. For full-year 2012, the Zacks Consensus Estimate rose 2 cents in the last 7 days, while it moved up by 3 cents to $2.47 over the last 30 days.
With respect to earnings surprises, Ameren has topped the Zacks Consensus Estimate in one out of the last four quarters. Over the last four quarters, the surprise ranges from (6.67%) to 21.71% with an average of (7.52%).
St. Louis-based Ameren Corporation is a holding company which engages in the generation and distribution of electricity and natural gas and serves residential, commercial, industrial and wholesale end-markets in Missouri and Illinois.
With a generating capacity of 15,900 megawatts, the company, through its subsidiaries, serves 2.4 million electric customers and more than 0.9 million natural gas customers in a 64,000-square-mile area.
Ameren's stable and regulated electric power operations in the Midwest market generate a relatively stable and growing earnings stream. Future growth will be guided by improved plant operations, higher rates in Missouri and Illinois, lower operations and maintenance expenses, and installation of emissions reduction equipment (scrubbers) at its generation plants.
Currently, Ameren has a short-term (1 to 3 months) Zacks #3 Rank (Hold) and a long-term (6+ months) Neutral recommendation.
Our cautious stance on Ameren takes into account its significant fossil fuel based generating units and uncertainty about the rate of recovery of the economy. To comply with state and federal regulations, the company has to invest a significant chunk to reduce emissions from its generation assets, including installation of selective catalytic reduction and overfire air to control nitrogen oxide emissions and the use of activated carbon injection to control mercury emissions.
While Ameren’s liquidity position is sound and growth potential is also attractive, we continue to believe that the near- to medium-term outlook for merchant power generators is tepid. Performance in the second quarter has been affected by lower power prices in the merchant power segment. In the near term, the scenario is unlikely to change and the company will resort to hedging its power prices to a greater extent.
Given these headwinds, we believe that Ameren’s current valuation adequately reflects its fairly balanced risk/reward profile. As such, we see limited upside from current levels. This is in line with its peers like the Illinois utility Exelon Corporation (EXC - Analyst Report).